2009 (1) TMI 559 - AT - Central Excise

Summary

Issues involved: Determination of whether the activity of applying fusion bonded epoxy coating on reinforced steel bars amounts to manufacture and the reversal of Modvat credit on inputs used in final products cleared without duty payment.

Issue 1 - Activity of applying fusion bonded epoxy coating:
The appellants were engaged in applying fusion bonded epoxy coating on reinforced steel bars. A dispute arose with the Central Excise authority regarding whether this activity constituted manufacture. The Tribunal, in a previous order, held that the coating of steel bars does not amount to manufacture. Consequently, the appellants ceased paying duty on their final products and stopped availing Modvat credit for inputs.

Issue 2 - Reversal of Modvat credit on final products cleared without duty payment:
As of July 31, 2003, the appellants had a stock of final products that were cleared without duty payment, leading the Revenue to assert that the Modvat credit availed on inputs used in these products must be reversed. The Tribunal referred to a Larger Bench decision in the case of M/s. H.M.T v. CCE, which emphasized that there is no direct correlation in the credit scheme. It was held that if the credit was correctly utilized when the final product was dutiable, it cannot be reversed when the final product becomes exempted subsequently.

In conclusion, the Tribunal, following the precedent set by the Larger Bench decision, set aside the impugned order and allowed the appeal, providing consequential relief to the appellant.