2000 (7) TMI 303 - AT - Central Excise

Summary

Issues: Modvat credit eligibility for duty paid on inputs used in manufacturing inserts and tips; Classification of inserts and tips as intermediate or final products; Applicability of rule 57C and rule 57D(2); Interpretation of intermediate product in relation to final products; Reference to High Court for clarification on inserts and tips classification.

In this case, the Appellate Tribunal CEGAT, Mumbai, addressed the issue of modvat credit eligibility for duty paid on inputs used in manufacturing inserts and tips. The Tribunal held that the respondent was entitled to take modvat credit despite the inserts and tips being exempt from duty under notification 58/86. The Tribunal determined that the inserts and tips were intermediate products used in the manufacture of hand tools, qualifying for modvat credit. The questions referred to the High Court were whether the inserts and tips should be classified as intermediate or final products and which rule, either 57C or 57D(2), would apply in this situation.

Regarding the classification of inserts and tips, the Tribunal explained that an intermediate product arises between raw material or components and the final product. The Tribunal emphasized that the nature of use of the product determines its classification as an intermediate product. It clarified that even if a significant portion of the final product is cleared on payment of duty, the portion used in manufacturing can still be considered an intermediate product if utilized in the production process. The Tribunal highlighted the proviso to rule 57D(2), which mandates the use of intermediate products in the factory of production, with specific procedures for use elsewhere.

The Tribunal rejected the department's argument that the inserts and tips could not be considered intermediate products due to the majority being cleared on duty payment. It distinguished a previous case involving Bajaj Tempo Ltd., where the issue was different, emphasizing that the department had no objection to allowing modvat credit for intermediate inputs consumed within the same factory. The Tribunal concluded that no question of law arose for reference to the High Court and dismissed the department's application, affirming the eligibility of the respondent for modvat credit on the duty paid inputs used in manufacturing the inserts and tips.