1998 (8) TMI 351 - AT - Central Excise

Summary

Issues:
- Entitlement to Modvat credit on rejected goods used in the manufacture of final products.

Analysis:
The appeal before the Appellate Tribunal CEGAT, Mumbai involved a dispute regarding the entitlement to Modvat credit on rejected goods used in the manufacture of final products. The Respondents, who manufacture goods under specific chapters of the Central Excise Tariff Act, availed Modvat credit under Rule 57A of the Central Excise Rules. The issue arose when the Commissioner of Central Excise imposed a duty demand and penalty on the Respondents for taking credit on rejected final products that were not considered inputs. The Additional Commissioner upheld the duty demand, but the Commissioner (Appeals) ruled in favor of the Respondents, allowing them to take Modvat credit on the rejected materials.

The key argument presented by the ld. DR was that unless it is demonstrated that the rejected goods were indeed used in the manufacturing process, the Modvat credit under Rule 57A would not be applicable. It was contended that receiving goods for repairs only does not amount to manufacturing, thus disqualifying the Respondents from claiming Modvat credit on the defective goods returned by customers.

In response, the learned Counsel for the Respondents highlighted that a declaration had been submitted to the Assistant Commissioner, specifying the defective materials received back for repairs. The Counsel emphasized that the returned goods, such as clips and clamps, required a manufacturing process involving softening, flattening, and reshaping, which qualified as manufacturing under the relevant rules. Referring to a Tribunal judgment in a similar case, the Counsel argued that defective goods used as inputs should be eligible for Modvat credit, as they are not considered final products.

After considering the arguments from both sides, the presiding Judge found merit in the submissions made by the Respondents' Counsel. It was noted that a valid declaration under Rule 57G had been acknowledged by the Assistant Commissioner's office, confirming the return of goods by customers with duty payment. The Judge agreed that the process involved in preparing the returned goods was more than mere repairs, constituting a manufacturing process. Consequently, the Commissioner (Appeals) decision to allow Modvat credit under Rule 57A for the goods in question was upheld, and the appeal was rejected.