1998 (11) TMI 290 - AT - Central Excise

Summary

Issues:
Whether Modvat credit is available for rejected Aluminium Extrusions returned by customers, considering conversion into Aluminium Sections amounts to manufacture.

Analysis:
The case involved a dispute regarding the entitlement of Modvat credit for rejected Aluminium Extrusions returned by customers, which were converted into Aluminium Sections by the manufacturer. The applicants argued that the rejected extrusions were akin to inputs as they had undergone processes for manufacturing prime quality extrusions. They relied on various Tribunal decisions supporting their claim for Modvat credit on rejected final products used as inputs. However, the Tribunal held that as the rejected extrusions were converted into new extrusions, no new product was created, and therefore, Modvat credit was denied. The issue was contentious, with conflicting decisions from different Tribunal Benches.

The ld. SDR contended that the Tribunal rightly denied Modvat credit, emphasizing that no new product emerged from the rejected extrusions, and hence, no manufacturing process was involved. He referenced previous decisions where Modvat credit was not allowed on returned defective goods that were reconditioned and cleared again. The SDR suggested following Rule 173H or 173L procedures instead. The Tribunal noted the conflicting views in different judgments, highlighting a distinction where returned goods were reconditioned and cleared without undergoing the entire manufacturing process.

After considering both sides' arguments and the conflicting Tribunal decisions, the Tribunal deemed the issue fit for reference to the Hon'ble High Court. The Tribunal referred the question of law to the High Court regarding the applicants' entitlement to Modvat credit on Aluminium Extrusions initially cleared, subsequently returned as rejected, and then converted into final Aluminium Extrusions. The Tribunal acknowledged the differing perspectives in the judgments cited, indicating a need for legal clarity on the matter. Consequently, the Tribunal directed the registry to forward all relevant records to the High Court for further deliberation and resolution.