1997 (6) TMI 228 - AT - Central Excise

Summary

Issues:
Challenge to disallowance of Modvat credit on industrial tapes used in the manufacture of PU foams.

Detailed Analysis:
The appellants, manufacturers of PU foams, challenged the disallowance of Modvat credit on industrial tapes by the Commissioner (Appeals). Initially, the Department disputed the classification of PU foams under Chapter Heading 39.21, which was resolved in favor of the appellants. The dispute in this appeal centered around the claim for Modvat credit on industrial tapes used in manufacturing PU foams. The Asstt. Collector had allowed the Modvat credit on industrial tape, considering it an input for the final product. However, the Collector (Appeals) disagreed, stating that industrial tapes were merely protective or decorative articles and not essential for production.

The appellants argued that industrial tapes were crucial for the durability of PU foams and were part of the manufacturing process. They contended that industrial tapes were necessary for the product to reach the RG 1 stage. The appellants cited various tribunal decisions emphasizing that any component used in the manufacturing process or required to make the article marketable should be considered a raw material or component eligible for Modvat credit.

On the other hand, the Department argued that industrial tapes did not alter the character of PU foams and were not essential inputs for Modvat credit eligibility. They referred to Chapter Note 10 of Chapter 39, stating that further worked sheets or strips were not covered under sub-heading 39.21. The Department contended that industrial tapes were merely decorative or added to the durability of the foam, not qualifying as eligible inputs.

After considering the submissions, the judge noted that industrial tapes were used in the manufacture of PU foams and were crucial for the product's marketability and durability. The judge emphasized that the essential requirement for Modvat credit eligibility was the use of an input in or in relation to the manufacture of the final product. As industrial tapes met this criterion, the judge found the appellants' case well-founded and allowed the Modvat credit on industrial tapes. The judge set aside the disallowance of credit and confirmed the appeal with the modification of allowing the credit of Rs. 11,376 to the appellants.