2000 (12) TMI 202 - AT - Central Excise

Summary

Issues:
1. Whether the appellant was entitled to pay duty on PVC film or sheet despite it being exempted by Notification 217/86?
2. Whether the appellant could take credit of the duty paid on the exempted PVC film or sheet for payment of duty on the final product, leather cloth?
3. Whether the provisions of Notification 177/86 restricting Modvat credit applied to the appellant's manufacturing process involving PVC granules and coated fabrics?

Analysis:

Issue 1:
The appellant contended that despite the exemption under Notification 217/86, it was entitled to pay duty on the PVC film or sheet. The Commissioner disagreed, citing the Supreme Court's judgment in Kailashnath v. State of UP. However, the Tribunal found that the appellant was indeed entitled to pay duty on the exempted product. The Tribunal clarified that the duty paid could be utilized as credit for the duty on the final product, leather cloth.

Issue 2:
The appellant argued that the decisions of the Tribunal supported the view that duty could be paid on exempted goods. The Tribunal agreed, emphasizing that the exemption notifications considered by the Tribunal did not distinguish between partial and complete exemptions. The Tribunal upheld the appellant's right to pay duty on the PVC film or sheet and take credit for the duty paid.

Issue 3:
Regarding the application of Notification 177/86, the Tribunal analyzed the manufacturing process of the appellant involving PVC granules and coated fabrics. It concluded that the credit available for duty paid on PVC granules used in the manufacture of sheets and film, which were further used in the coated fabric, could not exceed the limit specified in the notification. The Tribunal harmonized the law on payment of duty on exempted goods with the limitations on Modvat credit under Notification 177/86.

In conclusion, the Tribunal allowed the appeal in part, affirming the appellant's right to pay duty on the exempted PVC film or sheet. However, it restricted the Modvat credit available for the duty paid on PVC granules used in the manufacturing process. The Assistant Commissioner was directed to communicate the duty required to be paid by the appellant accordingly.