1999 (7) TMI 144 - AT - Central Excise

Summary

Issues:
1. Whether Modvat credit taken on inputs washed away by flood water is liable to be reversed.
2. Whether inputs used in the manufacture of semi-finished goods are eligible for Modvat credit.

Analysis:
1. The case involved a dispute regarding the Modvat credit taken on inputs washed away by flood water. The department contended that since the inputs were not utilized in the manufacture of finished products, the credit should be reversed under Rule 57G. The Deputy Collector partially accepted this argument, ruling that credit on inputs lying in stock before utilization and on inputs partially processed in semi-finished goods was not available. However, on appeal, the Collector (Appeals) sided with the assessee, stating that the credit taken on inputs used in the manufacture of semi-finished goods was rightfully claimed.

2. The Departmental Representative argued that Rule 57G required inputs on which credit was taken to be used in the manufacture of finished products, which did not occur in this case. In contrast, the advocate for the respondent contended that the inputs were intended for use in the manufacture of finished products, and in the case of semi-finished goods, the manufacturing process had been partially completed due to uncontrollable circumstances. The advocate cited precedents to support the argument that credit should not be reversed in such situations.

3. The Tribunal analyzed previous decisions and highlighted that when inputs are used for the intended manufacture of finished products, credit cannot be denied. Rule 57F(3) allowed inputs to be used in or in relation to the manufacture of finished products, even if the final product was not yet completed. The Tribunal emphasized that inputs can undergo transformation into intermediate products during the manufacturing process, losing their identity before the final product emerges. Therefore, in this case, where inputs were intended for the manufacture of final products and used in relation to such manufacturing, the credit should not be denied.

4. Ultimately, the Tribunal dismissed the appeal, affirming that the inputs contained in the semi-finished goods had been used in accordance with the law, and there was no justification to deny the Modvat credit. The judgment emphasized that the mere fact that the final product had not yet emerged did not negate the use of inputs in the manufacturing process.