2000 (10) TMI 355 - AT - Central Excise

Summary

Issues:
1. Whether the appellant is entitled to credit on the oil used for making fatty acid returned to another party.
2. Whether the credit taken on minor oil used in the manufacture of soap can be disallowed based on the exemption of the finished product from duty.
3. Whether the denial of credit on the oil received from another party for the manufacture of soap by the appellant is justified.

Analysis:

1. The appellant, engaged in soap manufacturing, used vegetable oil that resulted in the production of glycerine and fatty acid, with pitch as waste. The appellant received oil from a company under a contract to supply fatty acid. The excess fatty acid produced was used in the soap manufacturing process. The appellant took credit on rice bran oil used for soap production and reversed it when supplying fatty acid. The issue was whether credit could be denied on oil used for fatty acid returned.

2. A notice proposed disallowing the credit on minor oil used for soap manufacturing, citing exemption of the finished product from duty. The appellant argued that the credit was reversed for oil used in fatty acid supplied to another party and should not be further reversed. The authorities confirmed the disallowance, leading to the appeal. The tribunal analyzed the manufacturing process and the nature of the fatty acid as an intermediate product, not a final one, rejecting the denial of credit on oil used in the soap manufacturing process.

3. The department contended that taking credit when most oil would result in fatty acid for another party was not justified. Although the justice of this point was acknowledged, no penalty provision was invoked in the notice. The tribunal allowed the appeal, setting aside the order and providing consequential relief. The judgment clarified that denial of credit on oil used in the appellant's factory, even if received from another party, was impermissible when not denied for oil used for soap manufacturing on its own account.