1997 (4) TMI 188 - AT - Central Excise

Issues:
1. Whether the Modvat credit claimed by the appellant for waste and scrap of insulated cable was rightly disallowed by the department.
2. Whether the lower authorities correctly applied Rule 57D(1) in the appellant's case.
3. Whether the PVC portion of the insulated cable waste and scrap should be considered separately for Modvat credit purposes.
4. Whether the entire quantity of cable waste and scrap should be considered as used in the manufacture of the final product.

Detailed Analysis:

1. The appellant, a manufacturer of Aluminium Alloy Castings, including products of aluminum, used waste and scrap of insulated cable as input materials for their final products. The department objected to the Modvat credit claimed by the appellant, arguing that only part of the inputs went into the final product. Show cause notice was issued, and the appellant contested the allegation. The Deputy Collector and the Collector (Appeals) upheld the disallowance of the credit, leading to the present appeal.

2. The appellant's counsel argued that the lower authorities erred in holding that only the aluminum core or wire part of the insulated cable was used in the final product, thus wrongly disallowing the Modvat credit. The counsel cited Rule 57D(1), stating that credit for inputs should not be denied based on the presence of waste or by-products. The appellant purchased cable cuttings with an aluminum content, which was melted in the furnace, with the PVC insulation portion burnt away. The authorities incorrectly disallowed the entire Modvat claim, ignoring relevant case laws supporting the admissibility of Modvat credit for the entire quantity of input material.

3. The Departmental Representative argued against the appeal, stating that the PVC insulation portion was not used in the final product's manufacture, justifying the disallowance of credit for the entire cable cuttings quantity.

4. The judge agreed with the appellant's contention that the lower authorities misapplied Rule 57D(1). The appellant declared waste and scrap of insulated cable as input, which was a composite material. The PVC portion was not separately indicated for credit, and the credit was not claimed based on PVC alone. The judge emphasized that the entire cable waste and scrap were used in the manufacturing process, and the PVC portion becoming waste during manufacturing did not disqualify Modvat credit. The judge referenced relevant case laws where credit was allowed for the entire input material used in the manufacturing process.

5. The judge highlighted that the input material should be viewed as part of a continuous manufacturing operation, not compartmentalized. Therefore, the entire quantity of cable waste and scrap should be considered as used in the final product's manufacture, aligning with the principles established in previous case laws.

6. The judge observed discrepancies in the department's treatment of composite products for Modvat credit purposes and emphasized that the entire duty paid on inputs should be credited, even if parts of the input material are not directly used in the final product's manufacture.

7. Consequently, the impugned order disallowing the Modvat credit was set aside, and the appeal was allowed in favor of the appellant.

← Previous Next →