2005 (3) TMI 132 - SC - Central Excise

Whether appellant be charged with short levy of excise duty for the period 28-2-1993 to 31-8-1993 on the ground that the value of the TELCO's inputs in the assemblies should have been included in the assessable value of the assemblies? Held that - The submission of the appellant is correct. The Tribunal appears to have been confused between the manufacture of the final product, namely, excavators and the manufacture of the intermediate product, namely, the floor plate assemblies. The scheme of Modvat permits the person who clears the ultimate final product to take the benefit of the Modvat scheme at the time of clearance of such final product. The manufacturer of the final product, in this case TELCO, would therefore, be entitled not only to adjust the credit on the inputs supplied by it to the intermediate purchaser such as the appellant but also to the credit for the duty paid by the intermediate purchaser on its products. As the final product was the excavator. According to the Modvat scheme, it is the Modvat of such final product which would have to include the cost of the inputs and in respect of which Modvat credit could be taken at the time of clearance of the final product. The Tribunal having misconstrued the provisions of Rule 57F(2)(b), its decision cannot stand. The decision of the Tribunal is accordingly set aside and the appeal is allowed.

Summary

Issues:
1. Assessment of excise duty on floor plate assemblies manufactured by the appellant for TELCO.
2. Interpretation of Rule 57F(2)(b) of the Central Excise Rules, 1944 in relation to the Modvat scheme.
3. Applicability of Modvat credit in the context of the final product and intermediate products.

Analysis:

Issue 1: Assessment of excise duty on floor plate assemblies
The appellant, a job worker manufacturing floor plate assemblies for TELCO, was charged with short levy of excise duty for the period 28-2-1993 to 31-8-1993. The dispute arose from whether the value of TELCO's inputs in the assemblies should have been included in the assessable value of the assemblies. The Departmental Authorities confirmed the demand and imposed a penalty, which was upheld by the Tribunal based on a previous court decision. However, the Supreme Court held that the Tribunal erred in its decision as it misinterpreted the Modvat scheme and the provisions of Rule 57F(2)(b). The Court ruled in favor of the appellant, stating that the value of the inputs supplied by TELCO should not be added to the excisable value of the assemblies, thereby setting aside the Tribunal's decision and allowing the appeal.

Issue 2: Interpretation of Rule 57F(2)(b) and the Modvat scheme
The appellant argued that the transaction between TELCO and itself was covered by Rule 57F(2)(b) of the Central Excise Rules, 1944. Under this rule, the manufacturer of the final product (excavators in this case) is permitted to remove inputs for the manufacture of intermediate products, with credits being adjusted accordingly. The Court agreed with the appellant's interpretation, emphasizing that the Modvat scheme allows the manufacturer of the final product to benefit from the scheme at the time of clearance. Therefore, the appellant, as an intermediate purchaser, was not liable to pay duty on TELCO's inputs and the value of those inputs should not be added to the excisable value of the assemblies.

Issue 3: Applicability of Modvat credit
The Court clarified that the Modvat of the final product (excavators) should include the cost of inputs, allowing for Modvat credit at the time of clearance. The Tribunal's confusion between the manufacture of the final product and the intermediate product led to an incorrect decision. By distinguishing a previous case related to free inputs in wagons, the Court highlighted that the current case involved the liability of an intermediate product (floor plate assemblies) being subjected to excise duty, not the final product. Therefore, the Tribunal's decision was set aside, and the appeal was allowed.

In another case (C.A. Nos. 4086-87/2001), the Court reiterated the reasoning provided in the earlier judgment, setting aside the penalty imposed on the appellant and allowing the appeals. The appellant, however, did not claim a refund of any duty paid following the set-aside demand.