2014 (12) TMI 696 - HC - Central Excise

MODVAT credit - benefit of Notification No.217/86-CE and Notification No.67/95-CE - Captive consumption - Marketability of castings - Held that - as per the agreement between the first respondent and Vehicle Factory of the Defence Ministry, the first respondent was prevented from selling or marketing the castings or passing on any information about the same to any other persons. Hence, the finding of the Original Authority as well as the Tribunal that aluminium castings in question were not marketable is justified. The lower authority has not examined the applicability of the notification but confined to examination of marketability aspect alone. It is an accepted fact that the final product namely, Spring Brake Actuation equipment is cleared without payment of duty under Notification No.239/86 and 64/95. In the manufacture of the above said final product, the aluminium castings are used. These castings are manufactured in the factory premises itself and captively consumed. For such captive consumption, Notification No.217/86 and 67/95 have been availed by the respondent. This is not proper in my view as these two notifications are not applicable when the final product is exempted. Hence, there appears to be an error apparent on the face of the record and the Original Authority is required to consider this issue, which has been raised in the show cause notice. - Matter remanded back - Decided partly in favour of Revenue.

Summary

Issues:
1. Interpretation of whether the aluminium castings were tailored for specific use by the Ministry of Defence and not fit for private motor vehicle manufacturers.
2. Examination of whether the marketing and transfer of information of the aluminium castings were restricted under an agreement with the Defence Ministry.
3. Determination of whether the aluminium castings were not capable of being marketed and thus not subject to duty of excise.
4. Analysis of whether duty exemption on intermediate products applies when the final product is cleared without payment of duty.
5. Evaluation of whether the essential requirements of specific notifications for duty exemption were met.

Issue 1 - Interpretation of Tailored Use:
The appellant challenged the Tribunal's decision regarding the suitability of aluminium castings for spring brake chambers ordered by the Ministry of Defence. The castings were found not fit for use by private motor vehicle manufacturers. The Tribunal upheld that the castings were specifically tailored for the Defence Ministry's requirements, supporting the respondent's claim.

Issue 2 - Marketing Restrictions:
The dispute involved whether the marketing and information transfer of the aluminium castings were prohibited under an agreement with the Defence Ministry. The first respondent contended that the castings were not marketable due to contractual restrictions. The Adjudicating Authority and Tribunal accepted this argument, leading to the duty demand being dropped.

Issue 3 - Marketability and Duty Liability:
The contention revolved around the marketability of the aluminium castings and the consequent duty liability. The Department demanded duty, while the first respondent argued that the castings were not marketable, supported by the agreement terms. The Tribunal concurred that the castings were not capable of being marketed, resulting in the duty demand being dismissed.

Issue 4 - Duty Exemption on Intermediate Products:
The Commissioner (Appeals) found that duty exemption on intermediate products was not applicable when the final product was exempted from duty. The Tribunal upheld this decision, emphasizing that the exemption on inputs would not apply if the final product was exempt. The matter was remanded to the Adjudicating Authority for further consideration.

Issue 5 - Compliance with Notification Requirements:
The Tribunal's decision was challenged concerning the satisfaction of the essential ingredients of duty exemption notifications. The Commissioner (Appeals) highlighted a potential error in addressing the applicability of notifications. The matter was remanded for a thorough examination of the issue related to the notifications and duty exemption on intermediate products.

In conclusion, the High Court upheld the Tribunal's decision on the marketability of aluminium castings and duty liability. However, the matter regarding duty exemption on intermediate products was remanded for further assessment.