1997 (4) TMI 241 - AT - Central Excise

Summary

Issues:
- Entitlement to Modvat credit on duty paid for fuel oil and light diesel oil used to generate steam for manufacturing pigments.

Analysis:
The appeal before the Appellate Tribunal CEGAT, Mumbai centered around the question of whether the assessee is entitled to Modvat credit of the duty paid on fuel oil and light diesel oil used to generate steam for the manufacturing process of pigments. The appellant argued that the steam produced from burning the fuel oils was an intermediate product used either in the reaction vessel for converting raw materials into pigments or in drying chambers to dry the pigments after formation. The appellant relied on a previous Tribunal order to support their claim.

The Departmental Representative raised three objections to the appellant's claim. Firstly, he argued that Rule 57D applies to intermediate products that arise during the manufacturing process of the final product. He contended that steam, being specifically generated independently of the manufacturing process, does not qualify as an intermediate product. Secondly, he asserted that steam is an input used in or in relation to the manufacture of the final product, and as it is exempted from duty, credit for duty paid on mineral oils used in its generation cannot be allowed. Lastly, he pointed out an amendment to Rule 57D, which he believed clarified that credit was not available on inputs used for generating steam before the amendment.

The Tribunal referred to a decision where it was held that credit could be taken on duty paid for fuel oil used to produce steam for manufacturing final products. In response to the Departmental Representative's objections, the Tribunal cited a decision of the Madras High Court where it was established that certain items, even if exempted from duty, could still be considered intermediate products for the purpose of claiming credit on inputs used in their manufacture.

The Tribunal determined that in the present case, steam was a final product for the appellant, even though it was used in the manufacturing process of the ultimate product, pigments. The Tribunal emphasized that the provisions of Rule 57C did not apply to steam in this scenario. It rejected the argument that the amendment to Rule 57D implied that credit was not available on inputs used for generating steam before the amendment, stating that the plain language of the rule did not support such a conclusion.

Ultimately, the Tribunal allowed the appeal, setting aside the impugned order and ruling in favor of the appellant's entitlement to Modvat credit on the duty paid for fuel oil and light diesel oil used to generate steam for manufacturing pigments.