Minutes of the Monthly MODVAT meeting held on 6-2-1989 and 8-3-1989 at Delhi - Point No. 15 - Regarding Modvat problem concerning pharmaceutical products - Central Excise - 27/89

Minutes of the Monthly MODVAT meeting held on 6-2-1989 and 8-3-1989 at Delhi - Point No. 15 - Regarding Modvat problem concerning pharmaceutical products Circular No. 27/89 Dated 30-6-1989 [From F. No. 263/22/89-CX.8] Government of India Ministry of Finance (Department of Revenue) Central Board of Excise Customs, New Delhi Subject : Minutes of the Monthly MODVAT meeting held on 6-2-1989 and 8-3-1989 at Delhi - Point No. 15 - Regarding Modvat problem concerning pharmaceutical products. I am directed to invite your attention to the minutes on Point No. 15 of the Monthly Modvat meeting held at Delhi on 6-2-1989 and 8-3-1989 on the above subject. Doubts have been raised whether credit of duty taken on inputs which are lying in stock on the day of exemption of final product would be recoverable or not. It was pointed out that Rule 57C is not amply clear on this issue. As decided in the meeting matter has been examined in consultation with the Law Ministry. The Ministry of Law has opined that the credit of duty taken on inputs which are in stock on the date of exemption of the finished goods would be required to be reversed, since such goods are going to be used in the final products which would be exempted (Copy of Ministry of Law's opinion is enclosed). It has therefore been decided that there is no need to amend Rule 57C as the language thereof is clear enough. Field formation and trade interest may be suitably informed. Therefore cases, if any, pending on this account may be settled accordingly. Receipt of this letter may please be acknowledged. COPY Subject : Rule 57C of the Central Excise Rules reads as follows : "Rule 57C. - Credit of duty not to be allowed if final products are exempt. - No credit of the specified duty paid on the inputs used in the manufacture of a final product shall be allowed if the final product is exempt from the whole of the duty of excise leviable thereon or is chargeable to nil rate of duty." 2. By virtue of the aforesaid rule, credit of duty can be taken only on inputs which are used in the manufacture of finished excisable goods. If the final product is exempted from excise duty or is chargeable to nil rate of duty the aforesaid benefit will not be available to the inputs used in the manufacture of the same. Certain doubts about the interpretation of the aforesaid rule have arisen which have been discussed in the referring note. 3. The party is of the view that there is no irregularity in taking Modvat credit since the same credit was taken prior to 29-2-1989 when the final product was dutiable. They have contended that there is no one to one co-relation of input and output under the Modvat scheme for utilisation of credit and, therefore, there should be no bar in providing them the said credit. 4. The Dept. of Revenue are of the view that credit of duty taken on inputs which are in stock on the date of exemption of finished goods would be required to be reversed because such inputs are going to be used in the final products which would be exempted. 5. In our opinion, the language of the aforesaid Rule 57C is clear (enough to support the view taken by the Department of Revenue in the paragraph above. Sd/- (K.D. Singh) Deputy Legal Adviser 10-5-1989 Tel. No. 381116.