1999 (9) TMI 388 - AT - Central Excise

Summary

Issues:
1. Denial of Modvat credit on capital goods used for manufacturing tools.
2. Classification of tools as final products or intermediate goods.
3. Revenue implications and justification for denial of Modvat credit.

Analysis:
1. The primary issue in this case revolves around the denial of Modvat credit amounting to Rs. 2,094.94 to the appellants due to the capital goods used for manufacturing tools not being considered admissible. Additionally, a penalty of Rs. 500.00 has been imposed.

2. The crux of the argument presented by the appellants is that the tools manufactured by them, used captively for further manufacture of Balls and Roller Bearings, should be classified as intermediate goods rather than final products. They rely on Notification No. 67/95-C.E. exempting these tools from duty due to their captive use. The appellants contend that Rule 57R(2) of the Central Excise Rules allows for credit on capital goods even if no intermediate products emerge during the manufacturing process of final products exempted from duty.

3. The appellants further assert that there are no revenue implications as they could have availed Modvat credit on capital goods and paid duty on the interchangeable tools, maintaining revenue neutrality. The denial of Modvat credit is deemed unjustified by the appellants.

4. On the contrary, the Revenue argues that the tools should be categorized as final products exempt from duty, thereby disqualifying the appellants from claiming Modvat credit on the capital goods used in tool manufacturing.

5. The judgment critically analyzes precedents such as the Flex Lamination case, where inputs treated as intermediate products were eligible for Modvat credit despite being exempted under a notification. Drawing from this precedent, the judgment concludes that if tools are used captively in the manufacture of final products, they attain the status of intermediate products. The decision also highlights the revenue-neutral nature of the appellants' actions, ultimately leading to the setting aside of the impugned order and allowing the appeal with consequential reliefs to the appellants.