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TMI Blog1993 (3) TMI 218X X X X Extracts X X X X X X X X Extracts X X X X ..... emand for reversal of Modvat credit in respect of the duty credit involved on Bi-metal strips, which had been utilised in the manufacture of shaft bearings cleared at Nil rate of duty under the aforesaid exemption notification. In the adjudication proceedings, the Assistant Collector held that as per the provision of Rule 57C, credit can not be allowed on inputs used in the manufacture of final products, which are exempted. The Appellant went before the Collector (Appeals) by way of appeal, which was also rejected. Hence the present appeal before the Tribunal. 2A. The only issue to be decided in this case is whether credit of duty paid on inputs brought in under Rule 57A can be reversed, when certain final products, wherein such inputs have been used are cleared at 'Nil' rate of duty availing full exemption. 3. We heard the elaborate arguments of both the sides and also considered the citations made by each side. They are discussed at the relevant places in our findings below. 3.1 The first plea of the Counsel for the appellant is that Notification 217/85 is a conditional exemption and duty is payable on the goods cleared under Chapter X procedure, if they are not rewarehoused o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ducts clearer on payment of duty. When the final product is cleared free of whole of the duty leviable under an exemption notification, the scheme does not envisage subsiding the manufacturer of the final product by allowing credit of duty on inputs used therein. Hence we are not impressed by this argument as well. 3.3 Third argument of the ld. Counsel for the Appellants is that even as per Rule 57C, no credit of duty paid on the inputs used in the manufacture of final product shall be allowed, if the final product is wholly exempted from duty. (emphasis supplied by the Councel). Here at the time of allowing credit, it can not be anticipated that the inputs would be used on certain shaft bearings cleared under Chapter X procedure at 'Nil' rate of duty. Credit has been allowed in respect of final products, which are dutiable and major portion of these products are also cleared on payment of duty. The credit would be utilised only against duty payable on the specified final products and not for clearance of any other final products, not specified in the declaration. In this context, he seeks to rely an the decision of the South Regional Bench in the case of Collector of Central Exci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on inputs and accumulate for future duty-paid clearances of final products. The East Regional Bench in the case of East India Pharmaceuticals have taken the opposite view holding that it is necessary to read down Rule 57F(3) with Rule 57C and credit can not be utilised, if the final products are exempt and credit has to be reversed, if such inputs have gone into the manufacture of exempted final products, though specified in the Modvat declaration. 4.3 One of us (Shri Desai) sitting as a Single Member, has referred an identical issue to the President for placing before the larger Bench. (vide his Order No. 1560/92-WRB, dated 9-9-1992 in Appeal No. E/7277/92 filed by M/s. Shah Foods Ltd.) 4.4 Though we are persuaded by the ratio of the judgment of Delhi High Court in the case of 'Good Year India, which was not considered by the East Regional Bench in the case of East India Pharmaceuticals, we find that the reasoning given by the East Regional Bench, with special emphasis on the significance of the term 'such inputs' figuring in Rule 57F(3){i) and the need for reading the provisions of Rule 57F(3)(i) in conjuction with Rule 57C cannot be ignored. These aspects have not been conside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... each other, we consider it fit for placing before the larger Bench, for deciding on the following questions : "Whether, in the context of the provisions of Rule 57C vis-a-vis Rule 57F(3)(i) of the Central Excise Rules, Modvat credit of duty paid on inputs used in the manufacture of declared final products, part of which are cleared free of the whole of duty of excise leviable thereon, in terms of an exemption Notification, could be disallowed by way of reversal of credit of duty on such inputs, which have been used in the manufacture of final products cleared free of duty?" 7. The registry is directed to send the appeal files and other connected records, to the President for considering constitution of a larger Bench. 8. [Assent per : P.K. Desai, Member (J)]. - While concurring with the views and endorsing the order that the matter be referred to the larger Bench for proper interpretation, when I have, sitting as a single member, vide Order No. 1560/92-WRB, dated 9-9-1992 in Appeal No. E/277/92, also referred identical point to the Larger Bench, highlighting two conflicting views of two Benches of the CEGAT, I deem it necessary and desirable, with a view to supplement what has b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions of Rule 57-I already existing and permitting issuance of direction as to reversal of or cash demand for, the credit "utilised", it can hardly stand to any reason that utilisation provided for in Rule 57F(3)(i) is irreversible. What the said Rule provides for is that the credit, as availed of, can be utilised against payment of duty of the final product, in or in relation to which such inputs are intended to be used. The only interpretation that appears in confirmity with the basic concept of the MODVAT Scheme, is that one need not wait for utilisation of the credit till the final product out of the concerned input is removed on payment of duty. It, no where, either expressly or impliedly, says that utilisation is irreversible not-withstanding whether the final product, when removed, does not suffer any duty. The facility in the said rule, has a nexus with utilisation of credit and not the availment thereof. 13. In the instant case, the final product has not suffered any duty. Removal by following procedure laid down in Chapter X cannot make any difference, and in that case we are inclined to endorse the view expressed by the East Regional Bench in East India Pharmaceutical Wo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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