2000 (12) TMI 657 - AT - Central Excise

Summary

Issues:
1. Admissibility of Modvat credit on inputs used in the manufacture of exempted parts/components.
2. Interpretation of Rule 57C of the Central Excise Rules.
3. Applicability of Notification No. 217/86-C.E. regarding clearance of goods under Chapter X procedure.
4. Consideration of conflicting decisions by different tribunals and circulars issued by the Board.

Issue 1: Admissibility of Modvat credit on inputs used in the manufacture of exempted parts/components:
The case involved manufacturers availing Modvat credit on inputs used in manufacturing final products, specifically parts/components cleared without duty payment under Notification No. 217/86-C.E. The Revenue contended that Modvat credit was inadmissible as per Rule 57C of the Central Excise Rules. The original authority imposed a penalty for the credit illegally utilized. The Collector (Appeals) allowed the appeal, citing a precedent where Modvat credit was upheld for components sent to another unit without duty payment. However, the appellate tribunal found that as per Rule 57C, Modvat credit for exempted parts/components was not admissible, aligning with a circular by the Board and a decision in favor of the Revenue in a similar case. The tribunal allowed the Revenue's appeal, directing the reversal of Modvat credit but rejected the penalty imposed on the manufacturers.

Issue 2: Interpretation of Rule 57C of the Central Excise Rules:
Rule 57C prohibits allowing credit on inputs used in manufacturing final products exempted from excise duty. In this case, the manufacturers were availing Modvat credit for inputs used in manufacturing exempted parts/components cleared without duty payment. The tribunal upheld the application of Rule 57C, emphasizing that Modvat credit for such exempted components was not admissible, consistent with the legal position and the Board's circular.

Issue 3: Applicability of Notification No. 217/86-C.E. regarding clearance of goods under Chapter X procedure:
The manufacturers cleared parts/components under Notification No. 217/86-C.E. without duty payment following Chapter X procedure for further utilization in final product manufacturing at another unit. While the Collector (Appeals) relied on a precedent supporting Modvat credit in such cases, the tribunal emphasized Rule 57C's restriction on credit for exempted final products, leading to the reversal of Modvat credit availed by the manufacturers.

Issue 4: Consideration of conflicting decisions by different tribunals and circulars issued by the Board:
The tribunal considered conflicting tribunal decisions and the Board's circular stating that Modvat credit was not available for inputs used in exempted intermediate products cleared under Chapter X procedure. Despite the Collector (Appeals) relying on a different precedent, the tribunal favored the Revenue's appeal based on Rule 57C and the Board's circular, emphasizing the inadmissibility of Modvat credit for exempted parts/components.

In conclusion, the tribunal allowed the Revenue's appeal, directing the reversal of Modvat credit but rejected the penalty imposed on the manufacturers due to the legal position under Rule 57C and the Board's circular guidance.