1997 (3) TMI 248 - AT - Central Excise

Summary

Issues:
1. Interpretation of Rule 57C regarding availing exemption or credit under Modvat scheme.
2. Whether the embargo under Rule 57C is absolute.
3. Applicability of explanatory notes to unregistered units.
4. Legality of the Tribunal's decision in light of the A.P. High Court judgment.
5. Merits of referring questions of law to the High Court.

Analysis:
1. The main issue in this case revolves around the interpretation of Rule 57C of the Central Excise Rules regarding availing exemption or credit under the Modvat scheme. The Tribunal initially held that the assessee had the option to choose between the two benefits. However, the High Court of Andhra Pradesh in the case of Ganesh Metal Processing Industries v. Union of India emphasized that Rule 57C categorically prohibits credit if the final product is exempt from duty. The High Court clarified that there is no legal basis for an option between exemption and Modvat credit, as the rule imposes an absolute embargo on credit in such cases.

2. The question of whether the embargo under Rule 57C is absolute was a significant point of contention. The High Court's ruling in the Ganesh Metal Processing case highlighted that the embargo against credit of duty paid on inputs is clear and categorical when the final product is exempt from excise duty. The court emphasized that the purpose of the rule is to prevent credit when the final product is exempt, as the Modvat scheme is designed to apply only when duty is leviable on the final product.

3. Another issue raised was the applicability of explanatory notes appended to the Finance Bill to unregistered units. However, the Tribunal noted that this point was not raised during the initial hearing and, therefore, could not be considered in the reference application for the first time. As a result, the applicants were not entitled to raise this issue in the reference application.

4. The legality of the Tribunal's decision in light of the A.P. High Court judgment was a crucial aspect of the case. The High Court's decision in the Ganesh Metal Processing case emphasized that the choice between Modvat credit and exemption should be left to the assessee based on what is best suited to them. The court highlighted that denying the benefit of subsequent notifications to those who had opted for the Modvat scheme would go against the purpose of providing incentives to small-scale industries.

5. Lastly, the Tribunal considered the merits of referring questions of law to the High Court. In light of the A.P. High Court's judgment and the analysis of the issues raised, the Tribunal found no merit in the reference application and dismissed it. The Tribunal concluded that the choice between Modvat credit and exemption should be left to the assessee, as highlighted by the High Court's decision in the Ganesh Metal Processing case.