1997 (10) TMI 272 - AT - Central Excise

Issues Involved:
1. Interpretation of Rule 57F of the Central Excise Rules, 1944.
2. Applicability of concessional rate of Central Excise Duty under Notification No. 175/86-C.E.
3. Legal fiction created by Rule 57F regarding the manufacture of inputs.
4. Determination of appropriate duty of excise for inputs removed from the factory.
5. Precedents and previous Tribunal decisions relevant to the interpretation of Rule 57F.

Issue-wise Detailed Analysis:

1. Interpretation of Rule 57F of the Central Excise Rules, 1944:
The central issue revolves around the interpretation of Rule 57F, which allows inputs on which credit of duty has been taken under Rule 57A to be removed from the factory for home consumption or export, subject to prior permission from the Collector of Central Excise. The rule stipulates that the duty of excise payable upon such removal should not be less than the credit availed under Rule 57A.

2. Applicability of Concessional Rate of Central Excise Duty under Notification No. 175/86-C.E.:
The appellants had purchased inputs from small-scale manufacturers eligible for a concessional rate of duty under Notification No. 175/86-C.E. However, the appellants themselves were not eligible for this exemption. The appellants argued that the duty payable on removal of inputs should be equivalent to the credit taken when the inputs were brought into their factory. The Revenue contended that the duty payable should be as if the inputs were manufactured in the appellants' factory, where the small-scale exemption was not applicable.

3. Legal Fiction Created by Rule 57F Regarding the Manufacture of Inputs:
The Tribunal examined the legal fiction introduced by Rule 57F, which deems the factory receiving the inputs for manufacturing final products as the factory manufacturing those inputs. This fiction must be fully applied to achieve the intended purpose, implying that the duty payable on removal of inputs should be as if the inputs were manufactured in the receiving factory.

4. Determination of Appropriate Duty of Excise for Inputs Removed from the Factory:
The Tribunal emphasized that the expression "appropriate duty of excise" in Rule 57F refers to the duty applicable to the excisable goods when removed from the factory. This duty could be higher than the credit availed but cannot be less. The Tribunal rejected the appellants' argument that the duty should be equivalent to the credit taken when the inputs were brought in.

5. Precedents and Previous Tribunal Decisions Relevant to the Interpretation of Rule 57F:
The Tribunal referred to several precedents, including:
- SAE (India) Ltd. v. Collector of Central Excise: The North Regional Bench held that the appropriate duty was the duty leviable at the time of clearance from the factory receiving the inputs.
- Khaitan Electricals Ltd. v. Collector of Central Excise: The Tribunal reiterated that the duty payable should be as if the inputs were manufactured in the receiving factory, and this duty could be higher than the credit availed.
- Ponds India Ltd. v. C.C.E.: The Tribunal held that the removal of inputs for home consumption must be treated as if the goods were manufactured in the receiving factory, requiring approval of price and classification lists.
- Collector of Central Excise, Madras v. Becon Weir Ltd.: The Tribunal emphasized the need to treat inputs removed for home consumption as if they were manufactured in the receiving factory.
- Collector of Central Excise, Coimbatore v. American Auto Service: The Tribunal clarified that "appropriate duty of excise" should not be equated with the credit already utilized but should be the duty applicable at the time of removal.

Conclusion:
The Tribunal found no merit in the appeals and rejected them. However, the penalty of Rs. 1000/- each was set aside due to the circumstances of the case. The Tribunal upheld the interpretation that the duty payable on the removal of inputs should be as if the inputs were manufactured in the receiving factory, aligning with the legal fiction created by Rule 57F and the precedents cited.

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