1996 (10) TMI 303 - AT - Central Excise

Summary

Issues: Denial of Modvat credit on inputs hydrochloric acid, ferric alum, and activated carbon used in the manufacture of glycerine.

The Commissioner of Central Excise filed an appeal against the denial of Modvat credit on inputs hydrochloric acid, ferric alum, and activated carbon used in the manufacture of glycerine, which was considered a distinct dutiable product. The respondents, engaged in soap manufacturing, used these inputs in the production of glycerine, a separate product from soap. The Department disallowed the Modvat credit, stating that the inputs were not used in soap manufacturing and that the respondents had not declared glycerine as a final product as required by Rule 57G of the Central Excise Rules. The Assistant Commissioner ordered the reversal of Modvat credit, but the Commissioner (Appeals) overturned this decision, considering glycerine as a by-product and allowing the Modvat credit.

Upon hearing arguments, it was contended that the inputs were used in the manufacture of glycerine, a product not declared by the respondents, and thus Modvat credit should be denied. The respondents argued that they considered glycerine a by-product and had not separately declared it, requesting leniency for their oversight. The Tribunal analyzed the manufacturing process and determined that glycerine was produced separately using the disputed inputs and sweet water, distinct from soap manufacturing. As glycerine was not a by-product of soap production, the provisions of Rule 57D Central Excise Rules, protecting Modvat credit for inputs used in by-products, did not apply. The Tribunal found the Commissioner (Appeals) reasoning unsustainable.

However, acknowledging that the inputs and glycerine were covered under the Modvat Scheme, the Tribunal deemed it appropriate to extend the Modvat credit facility to the respondents for the inputs used in glycerine production. Despite the initial incorrect declaration of the inputs against a different final product, the Tribunal directed the respondents to file a revised declaration with the Assistant Commissioner to regularize the credit availed. The appeal was disposed of in favor of the respondents, allowing the Modvat credit for the inputs used in the manufacture of glycerine.