1997 (7) TMI 303 - AT - Central Excise

Summary

Issues:
- Interpretation of Notification 217/86-C.E. regarding the utilization of Modvat credit for duty paid inputs.
- Whether the appellant's procedure of transferring Modvat credit from one unit to another is permissible.
- Application of Rule 57C in the case of fully exempted product like calcined alumina.
- Consideration of previous judgments like Bajaj Tempo Ltd. and Kirloskar Oil Engines in the decision-making process.

Analysis:
The case involved the appellant, a Govt. of India Undertaking with units at Damanjodi and Angul, manufacturing Calcined Alumina and Aluminium metal, respectively. The appellant despatched calcined alumina without duty payment under Chapter X procedure, utilizing Modvat credit from Damanjodi for duty payment on aluminium metal at Angul. The dispute arose when the appellant was asked to show cause for not recovering the Modvat credit amount. The appellant argued that its procedure was in line with Notification 217/86-C.E., aiming to avoid cascading effect and maintain revenue neutrality. The appellant sought retrospective approval for its procedure, citing precedents like Bajaj Tempo Ltd. Judgment. The SDR, however, relied on Rule 57C, emphasizing the need to reverse Modvat credit for fully exempted products like calcined alumina.

The Tribunal analyzed Notification 217/86-C.E., recognizing its unique relief provision for manufacturers using duty paid inputs in wholly exempted intermediate products for dutiable final products. It noted that the appellant's procedure was justified as the two units were to be treated as one entity for Modvat credit utilization. The Tribunal emphasized that procedural deviations should not hinder substantive benefits, allowing flexibility based on case exigencies. It distinguished the Kirloskar Oil Engines case, concluding that the appellant's approach aligned with the notification's purpose. Ultimately, the appeal was allowed, granting relief to the appellant in line with the interpretation of Notification 217/86-C.E.