1997 (12) TMI 452 - AT - Customs

Summary

Issues:
1. Denial of Modvat credit on inserts and tool tips under Rule 57A.
2. Review of Assistant Commissioner's order by Commissioner of Central Excise (Appeals) Pune.
3. Admissibility of Modvat credit under Notification No. 217/86 and Rule 57D(2) of the Central Excise Rules.

Analysis:

1. The appellants, engaged in manufacturing hand tools under the Modvat scheme, declared Inserts and Carbide Tips as inputs for their final products. The Department issued a show cause notice denying Modvat credit on these items, claiming they were exempt from duty when captively consumed as per Notification No. 58/86. The Assistant Commissioner initially dropped the demand, citing benefit availed under Notification No. 217/86 for captive consumption. However, the Commissioner (Appeals) reversed this decision, stating that the inserts and tool bits were themselves final products, thus no Modvat credit was eligible under Rule 57C if the final product was exempted.

2. The appellants, although absent, sought a decision on merits. They referenced an order by the Additional Collector of Central Excise, Pune, supporting Modvat credit on tool bits and inserts under Notification No. 217/86. They also relied on Rule 57D(2) of the Central Excise Rules, which prohibits denying credit if an intermediate product exists during the manufacture of the final product. The Tribunal found that the process of manufacturing hand tools involved creating inserts and tool tips as intermediate products, qualifying for Modvat credit under Rule 57D(2).

3. The Tribunal noted that the inserts and carbide tips were declared inputs for the final product, hand tools. The manufacturing process involved creating intermediate products, which were fitted into the hand tools. Citing the Tribunal decision in Collector of Central Excise v. Indian Aluminium Co. Ltd., the Tribunal emphasized that Rule 57D(2) carves out an exception for intermediate products exempt from duty, distinct from Rule 57C applying to exempt final products. Therefore, the Tribunal set aside the Commissioner (Appeals) order and allowed the appeal, affirming the admissibility of Modvat credit under Rule 57D(2) for the appellants' intermediate products.