2006 (12) TMI 8 - AT - Central Excise

Cenvat/Modvat appellants were manufacture of dutiable and exempted goods(casting) 10% of casting were captively consumed and balance sold Revenue department demanded reversal of 8% credit of value of pumps.

Summary

Issues:
1. Whether the appellant correctly reversed Modvat credit on captively consumed castings.
2. Whether the captively consumed castings should be considered as the final product for the purpose of Modvat credit adjustment.
3. Whether the captively consumed power driven pumps should be considered as the final product for Modvat credit adjustment.
4. Interpretation of Rule 57CC in the context of captively consumed products.

Analysis:
1. The appellant initially reversed 8% of the value of power driven pumps when removing castings for captive consumption. Subsequently, the amount was revised to 8% of the value of the castings, reducing the credit reversal from over Rs. 12 lakhs to Rs. 1.6 lakhs. The adjustments were made under Rule 57CC of Modvat Credit Rules.

2. The Division Bench noted that previous decisions favored the appellant, but raised concerns about whether castings should be considered an intermediate product or the final product. The matter was referred to the Larger Bench for clarification.

3. The appellant argued that previous Tribunal decisions supported their view that castings should be considered the final product for Modvat credit adjustment. The Revenue contended that the final product should be the ultimate product cleared from the factory, emphasizing the distinction between intermediate and final products.

4. The Tribunal analyzed the relationship between inputs (pig iron and foundry chemicals), castings, and power driven pumps. It was established that the direct involvement of inputs was in the production of castings, and castings were declared as final products by the appellant. The absence of a definition of 'final products' under Modvat rules during the relevant period was noted.

5. The Tribunal rejected the Revenue's argument to treat power driven pumps as the final product for credit adjustment, highlighting that such treatment would levy duty on exempted pumps. The disproportionate demand compared to the credit taken on inputs used in captively consumed castings indicated an unjust recovery attempt by the Revenue.

6. The Tribunal emphasized that the judgments cited by the Revenue were not relevant to the Modvat credit adjustment under Rule 57CC. It was concluded that castings should be considered the final product for credit adjustment, aligning with previous Tribunal decisions.

7. The reference was answered in favor of treating castings as the final product for Modvat credit adjustment, and the appeal was returned to the referring bench for a decision.