2001 (2) TMI 633 - AT - Central Excise

Summary

Issues:
Whether proportionate Modvat credit is reversible or demandable under Rule 57C of the Central Excise Rules, 1944 for inputs used in the manufacture of dutiable jute products cleared for export without duty payment under Chapter X procedure.

Detailed Analysis:

Issue 1: Proportionate Modvat Credit Reversal
The appeals were filed by the Revenue against the Order-in-Appeal setting aside the Orders-in-Original of the Asstt. Commr. of Central Excise, Serampore Division. The primary issue was whether Modvat credit was reversible or demandable under Rule 57C for inputs used in the manufacture of jute products cleared for export without duty payment under Chapter X procedure. The Department contended that since final products were cleared without duty payment, Modvat credit should be reversed. The Asstt. Commr. relied on a Tribunal decision stating Modvat credit is not allowed for inputs used in fully exempted final products. However, the Commissioner of Central Excise (Appeals) set aside the Orders-in-Original, leading to the Revenue's appeals.

Issue 2: Applicability of Rule 57C
The Revenue argued that Rule 57C clearly demarcates the scope and exceptions for Modvat credit reversal. They contended that Chapter X clearances, where final products were exported without duty payment, do not fall under the exceptions in Rule 57C. The Revenue disagreed with the Commissioner (Appeals) who considered the exporter as a 100% EOU or a unit in FTZ, contrary to Rule 57C. The Revenue sought to set aside the impugned order based on this argument.

Issue 3: Respondent's Contentions
The respondent, though absent during the hearing, filed a cross-objection. They argued that Rule 57C does not apply when final products are dutiable and not fully exempt. In this case, the final products were dutiable, and only exported goods were cleared without duty under a bond. They cited precedents where Modvat credit was allowed for export incentives. The respondent emphasized that in-bond clearances under Chapter X do not mean goods are fully exempt, supporting their contention against Modvat credit reversal.

Judgment and Conclusion
The Tribunal analyzed the arguments and documents, including the respondent's cross-objection. They noted that in-bond clearances under Chapter X do not equate to clearances of exempted or nil-rated goods. Therefore, Modvat credit for inputs used in such final products should not be reversed. The Tribunal disagreed with the reliance on the Kirloskar Oil Engines Ltd. case, stating it did not address the specific scenario in this case. Consequently, the appeals filed by the Revenue were rejected, upholding the impugned order.