1997 (10) TMI 127 - AT - Central Excise

Summary

Issues: Recovery of Modvat credit availed by the appellants, interpretation of Modvat scheme rules regarding the utilization of credit, admissibility of Modvat credit on inputs used in the manufacture of finished products, applicability of case law and Ministry's letter supporting the appellant's case, reversal of credit when the final product becomes exempted, recoverability of credit under Rule 57-I.

In this case, the appeal was against the order directing the recovery of Modvat credit availed by the appellants. The appellants were engaged in the manufacture of "Maaza" and aerated waters, taking Modvat credit of duty paid on inputs. The final product "Maaza" was exempted from duty under Notification No. 87/91. The appellants had taken Modvat credit but failed to deposit the balance amount. The issue revolved around whether Modvat credit could be availed before the utilization of inputs and if the credit on inputs used in finished products was admissible. The Deputy Collector and Collector (Appeals) rejected the appellant's contentions, leading to the appeal.

The appellant contended that under the Modvat scheme, there was no requirement to use inputs before utilizing the credit. They argued that the credit could be taken as soon as inputs were received and evidence of duty payment was available. The appellant relied on case law and Ministry's letter supporting their position. The Deputy Collector rejected these arguments, leading to the appeal before the Tribunal.

The Tribunal considered previous judgments where Modvat credit availed on inputs not used in finished products was held to be non-recoverable. Citing cases like Pearl Drinks (P) Ltd. v. CCE and Dipak Vegetable Oil Industries Ltd. v. U.O.I., the Tribunal held that the right to credit accrues when inputs enter the factory for use in the final product. Even if the final product becomes exempt, the credit on inputs need not be reversed if intended for use. Therefore, the Tribunal allowed the appeal, setting aside the previous order and granting consequential benefits to the appellants.

The Tribunal's decision was based on the interpretation of Modvat rules, case law, and the principle that Modvat credit on inputs should not be recoverable if intended for use in the final product, even if the final product becomes exempt from duty. The judgment provided clarity on the admissibility of Modvat credit and the non-reversal of credit in certain circumstances, aligning with previous legal precedents and principles of credit utilization under the Modvat scheme.