1998 (1) TMI 171 - AT - Central Excise

Summary

Issues:
- Review of Modvat credit on inputs destroyed by fire before being used in the manufacture of the finished product.
- Interpretation of Rule 57F(3) regarding the utilization of credit on inputs intended to be used in the manufacturing process.

Analysis:
The appeal involved a dispute over the Modvat credit on inputs destroyed by fire before being utilized in the manufacturing process. The Assistant Collector initially denied the credit, but after considering the appellant's explanation and a trade notice, he accepted that the inputs were actually used in the manufacture of the final product before being destroyed by fire. However, the Collector (Appeals) held that input credit is permissible only when the final product comes into existence with the use of that input.

The appellant, represented by Shri M.V. Ravindran, argued that the Assistant Collector's decision aligns with the trade notice and cited a Tribunal decision supporting the position that no reversal of Modvat credit is required if the inputs have been put to use and the finished products have been manufactured before destruction. On the other hand, Shri A.R.S. Kumar contended that the scheme requires the credit to be utilized in the manufacture of the final product, which did not occur in this case before the fire incident. He referred to a Tribunal decision stating that damage occurring before the actual manufacturing operation cannot be covered.

The Tribunal, comprising S/Shri K.S. Venkataramani and G.N. Srinivasan, analyzed the situation. They noted that the inputs, BOPP film, and prepared glue, had been put to intended use before the fire incident at the coating stage, which is integral to the manufacturing process. Referring to Rule 57F(3), which relates to credit utilization, the Tribunal emphasized that the inputs were indeed intended to be used, as evidenced by the manufacturing stages they had passed. They also highlighted the protective nature of the credit facility on inputs within the waste arising during production, as per Rule 57D. Additionally, the Tribunal observed that the Modvat scheme aims to provide input duty relief, and in this case, the Assistant Collector's decision was deemed reasonable and in line with the scheme's broader objectives. Consequently, the Tribunal set aside the Collector (Appeals) order and allowed the appeal in favor of the appellant.