1999 (2) TMI 335 - AT - Central Excise

Summary

Issues Involved:
1. Applicability of Exemption Notification 222/86 to waste, parings, and scrap from PU foam cakes.
2. Eligibility for refund of duty paid on waste, parings, and scrap.
3. Impact of Modvat credit on the duty-paid character of inputs.
4. Interpretation of duty payment under exemption notifications.

Detailed Analysis:

1. Applicability of Exemption Notification 222/86 to Waste, Parings, and Scrap from PU Foam Cakes:
The case revolves around whether the waste, parings, and scrap emerging from PU foam cakes qualify for exemption under Notification 222/86. The assessees, manufacturers of PU foam sheets, filed for a refund based on a previous Tribunal decision (Dura Foam Industries) which held that such waste falls under sub-heading 3915 of the CETA, 1985, and is exempt from duty under Notification 222/86. The Department contended that the conditions of the Notification were not met as no duty was paid on the PU foam cakes, which were exempt under Notification 217/86.

2. Eligibility for Refund of Duty Paid on Waste, Parings, and Scrap:
The lower appellate authority accepted the assessees' contention that the nil rate of duty on PU cakes under Notification 217/86 constitutes payment of duty at an appropriate rate. The PU cakes were considered intermediate products, and the polyol and isocyanate used to manufacture them had already suffered duty. The authority thus extended the benefit of Notification 222/86, subject to the condition that the refund would not result in unjust enrichment.

3. Impact of Modvat Credit on the Duty-Paid Character of Inputs:
The Tribunal noted that the availment of Modvat credit does not negate the duty-paid character of inputs. This was supported by previous Tribunal decisions, including Metal Lamp Caps India Ltd. and Nova Steel India Ltd., which held that inputs on which duty has been paid retain their duty-paid status even if Modvat credit is availed.

4. Interpretation of Duty Payment under Exemption Notifications:
The Tribunal discussed the interpretation of "duty paid" under exemption notifications. It was held that the expression "non-duty paid" in a deemed credit order includes inputs on which duty has not been paid for any reason, including exemption. However, when an exemption notification requires that the final product be made from inputs on which duty has been paid, this does not cover inputs exempt from duty. The Tribunal distinguished between the two scenarios, noting that the objective of the Modvat scheme is to extend credit for the duty actually paid on inputs.

Conclusion:
The Tribunal upheld the lower appellate authority's decision to extend the benefit of Notification 222/86 to the waste, parings, and scrap from PU foam cakes and sanctioned the refund claim, subject to the condition of unjust enrichment. The Tribunal rejected the Revenue's appeal, affirming that the nil rate of duty on PU cakes under Notification 217/86 does not disqualify the waste from exemption under Notification 222/86. The Tribunal also clarified that the availment of Modvat credit does not affect the duty-paid status of inputs.