1999 (9) TMI 189 - AT - Central Excise

Issues:
1. Determination of Modvat credit entitlement for a 100% EOU based on duty paid by input supplier.
2. Interpretation of Rule 57-A and Notification No. 177/86 regarding the extent of Modvat credit permissible.
3. Discrepancy between the contentions of the appellants and the Revenue on the Modvat credit calculation.
4. Necessity for a Larger Bench of the Tribunal to decide the quantum of Modvat credit available.

Issue 1: Determination of Modvat credit entitlement for a 100% EOU based on duty paid by input supplier

The case involves a 100% EOU receiving inputs from another 100% EOU where duty is paid in accordance with Section 3 read with Notification No. 97/91-C.E. The contention arises regarding the Modvat credit entitlement for the appellants based on the duty paid by the input supplier. The appellants argue that the entire excise duty paid by the input supplier should be eligible for credit under Rule 57-A. This argument is supported by a previous Tribunal case, highlighting the importance of determining the quantum of credit based on the additional duty leviable on like goods under the Customs Tariff Act.

Issue 2: Interpretation of Rule 57-A and Notification No. 177/86 regarding the extent of Modvat credit permissible

Rule 57-A and Notification No. 177/86 play a crucial role in determining the extent of Modvat credit permissible for inputs used in the final product manufacturing by a 100% EOU. The Revenue restricts the Modvat credit to 50% of the additional duty of Customs paid, citing the provisions of the notification. The lower authority emphasizes that the credit is limited to the amount of additional duty leviable under Section 3 of the Customs Tariff Act and paid. It is argued that the excise duty on goods manufactured in a 100% EOU consists of components chargeable under the Customs Act, justifying the restriction on Modvat credit.

Issue 3: Discrepancy between the contentions of the appellants and the Revenue on the Modvat credit calculation

The disagreement between the appellants and the Revenue centers on the calculation of Modvat credit, with the former advocating for a broader interpretation allowing for credit equal to the additional duty of Customs leviable on the goods. In contrast, the Revenue insists on restricting the credit to 50% of the additional duty of Customs paid as per Notification No. 97/91-C.E. The lower authority's reasoning supports the Revenue's stance, emphasizing the legal fiction surrounding the 100% EOU's status and the import analogy.

Issue 4: Necessity for a Larger Bench of the Tribunal to decide the quantum of Modvat credit available

Considering the conflicting interpretations and the presence of a contrary judgment in a previous case, the Bench decides to refer the issue of the quantum of Modvat credit available to a Larger Bench of the Tribunal for a definitive decision. This step is deemed necessary to resolve the discrepancy and ensure a harmonious construction of the provisions related to Modvat credit entitlement for 100% EOUs.

This comprehensive analysis of the judgment from the Appellate Tribunal CEGAT, New Delhi delves into the intricate legal nuances surrounding the determination of Modvat credit for 100% EOUs, highlighting the divergent perspectives of the appellants and the Revenue, and the need for a Larger Bench intervention to settle the contentious issue definitively.

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