1997 (6) TMI 157 - AT - Central Excise

Issues Involved:
1. Denial of Money Credit under Rule 57K for Ethyl Alcohol used in the manufacture of Acetic Anhydride.
2. Availability of Modvat Credit for duty-paid Molasses used in the manufacture of Ethyl Alcohol and Acetic Anhydride for Aspirin production.

Issue-wise Detailed Analysis:

1. Denial of Money Credit under Rule 57K:

The appellants utilized duty-paid molasses to manufacture Ethyl Alcohol, a notified input under the Money Credit Scheme, which was then used to produce Acetic Anhydride. A portion of this Acetic Anhydride was cleared on payment of duty, while the remaining portion was used captively for manufacturing Aspirin, a non-notified product under Notification 231/87. The appellants claimed that they maintained all necessary records and filed RT 12 returns for the products manufactured and cleared. They argued that they had the option to claim either Modvat credit for the molasses or the Money Credit Scheme under Rule 57K. For three years, the appellants availed the Money Credit for the entire quantity of Ethyl Alcohol, assuming full credit was available despite part of the Acetic Anhydride being used captively without duty payment under Notification 217/87. The Department initially allowed this benefit but later objected, leading to proceedings for duty payment for six months. The appellants contended that if the objection had been raised earlier, they would have opted for Modvat credit. They argued that Notification 217/87 should not be considered an exemption notification for Rule 57L purposes.

The Department argued that Rule 57L prohibits money credit for Ethyl Alcohol used to produce Acetic Anhydride that did not suffer duty. They maintained that Notification 217/87 exempts Acetic Anhydride, making it exempted goods, thus disqualifying it from money credit under Rule 57K.

The Tribunal held that both Modvat and Money Credit Schemes require the notified finished product to suffer duty. Since part of the Acetic Anhydride did not suffer duty due to Notification 217/87, it became exempted goods, invoking Rule 57L. The Tribunal upheld the lower authority's decision to deny money credit under Rule 57K, referencing the Larger Bench decision in Kirloskar Oil Engines Ltd. v. Collector of Central Excise, which established that input credit is not available for inputs in exempted finished products.

2. Availability of Modvat Credit for Duty-paid Molasses:

The appellants argued that they initially filed declarations for both Modvat and Money Credit purposes but did not pursue Modvat credit due to the full benefit of Money Credit for Ethyl Alcohol. They contended that the Department's subsequent denial of Money Credit should not preclude them from claiming Modvat credit for molasses used in manufacturing Aspirin via Ethyl Alcohol and Acetic Anhydride.

The Tribunal noted that the appellants and the Department initially understood the law to allow full Money Credit for Ethyl Alcohol, leading the appellants not to claim Modvat credit. Given the Department's change in stance, the Tribunal held that the appellants could not be denied Modvat credit. The Tribunal emphasized that the appellants maintained all necessary records and substantial compliance with Modvat provisions should suffice. Citing the Supreme Court judgment in Formica India Division v. Collector of Central Excise, the Tribunal ruled that the appellants should be allowed Modvat credit, subject to verification of duty payment on molasses and its utilization.

The Tribunal set aside the lower authority's order on this aspect and remanded the matter for de novo consideration, allowing the appeals by remand.

← Previous Next →