1998 (6) TMI 219 - AT - Central Excise

Summary

Issues:
Challenge to duty demand and penalty imposition based on disallowance of Modvat credit for malted food extracts; Transfer of DMI-70 between factories; Eligibility for Modvat credit and rebate on duty paid inputs; Interpretation of manufacturing process and eligibility for Modvat credit.

Analysis:
The appeal challenged an Order-in-Original confirming a duty demand and imposing a penalty against the appellants due to the disallowance of Modvat credit on malted food extracts called "DMI-70." The issue centered around whether the DMI-70 transferred between the appellants' factories was actually used as an input in the manufacture of their final products, namely "Horlicks" and "Boost." The appellants claimed that the DMI-70 underwent processes at the receiving factory before export, which they argued constituted manufacturing under the Central Excise Act, justifying the Modvat credit. However, the tribunal disagreed, stating that the processes did not transform the product into a new one and did not amount to manufacturing. The tribunal upheld the duty demand but reduced the penalty imposed.

The appellants operated two factories and transferred DMI-70 from one to the other. The Department alleged that the DMI-70 was not utilized for manufacturing the final products as claimed, leading to the disallowance of Modvat credit. The appellants argued that the processes conducted at the receiving factory qualified as manufacturing, making them eligible for the credit. However, the tribunal found that the exported product was still DMI-70, rejecting the appellants' manufacturing argument. The tribunal upheld the duty demand but reduced the penalty.

The appellants contended that they were entitled to rebate under relevant rules for the exported goods, emphasizing that the duty paid on the inputs was available for rebate. They argued that the duty paid on untested DMI-70 was eligible for rebate under specific notifications and rules. The Department, however, maintained that the DMI-70 transferred between factories was not used for manufacturing the final products for which Modvat credit was claimed. The tribunal agreed with the Department, ruling that the claim for rebate did not justify the inadmissible Modvat credit. The duty demand was upheld, and the penalty was reduced.

In conclusion, the tribunal confirmed the duty demand against the appellants due to the inadmissible Modvat credit claimed for the transferred DMI-70. Despite the appellants' arguments regarding manufacturing processes and rebate eligibility, the tribunal found that the credit was not justified. The penalty imposed was reduced, but the duty demand was upheld based on the failure to utilize the transferred product for manufacturing the final goods.