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TMI Blog2015 (6) TMI 402X X X X Extracts X X X X X X X X Extracts X X X X ..... bsp; The appellant was using duty paid watch parts in the manufacture of wrist watches and was availing modvat credit of the duty paid on these watch parts. A show cause notice dated 9.3.2000 was issued to the appellant on the basis of Report of Defective Work (RDW) for the period 1995-96 to 1998-99 to deny modvat credit on watch parts to the extent of Rs. 45,90,013/- on the ground that the watch parts were rejected as defective before they were used in or in relation to the manufacture of watches and were destroyed without following the prescribed procedure. Further, credit demand of Rs. 2,34,326/- was also proposed to deny on the ground that the inputs found short on the basis of general ledger stock of stock adjustment account. The adjud ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e inputs are contained in any waste, refuse or by product arising during the manufacture of the final product or when the inputs have become waste during the course of manufacture of the final product, the provisions of Rule 57D were applicable. If the inputs are found defective and are not used in the process of manufacture of final products, the benefit of Rule 57D is not applicable to such inputs. Only when the inputs are used in the manufacture of final products and some of those inputs become waste during the course of manufacture of the final product, the credit already taken in respect of such inputs wasted was not to be denied. In the present case, the appellants record in form RDW had not been examined by the adjudicating aut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ases of Sudarshan Chemicals Industries Ltd. Vs. CCE-2010 (262) ELT 974 (Tri.Mum.), Flex Engineering vs. CCE-2012 (276) ELT 153 (SC), TataEngg& Locomotive Co.Ltd.-2010 (256) ELT 56 (Bom). He further submits that there was no shortage of inputs as per general ledger stock of stock adjustment account. The shortages and excesses are due to the fact that stock accounting used to be done on weighment basis since minute inputs ran into millions and physical counting is not possible. He further submits that the appellant has produced reconciliation statement for rejections by production floor and work orders issued by stores with certificate issued by chartered accountant. He, therefore, submits that as the demands are not sustainable consequ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acture of watches, certain inputs were found defective and during further test or certain inputs were lost while manufacturing the goods. For that, the appellant has made certain heads, namely, Q.1 QC samples Destructive samples taken by Quality Control personnel inspectors and which get damaged/become unusable during the process of checking. Q.2 Samples taken by the manufacturing Engineer for Pilot Engineer testing and which get damaged/become unusable during the process of checking. M-2 Defect due to the handling of material identifiable by a visual check. M-3 Defect due to the handling of material identifiable by a functional check M-4 Defect due to the design and dimensional problem by a functional check. M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... watches and the same were found defective during the process of manufacture or during the course of Research and Development process which is integral part of the manufacturing process. Further, I find that the similar issue came up before Hon'ble High Court of Delhi in the case of Asahi India Safety Glass Ltd. (supra) wherein the High Court has granted the benefit of Rule 57D to the float glass not found defective per se and after being put on the float table, and after being cut, broken and washed defects were noted on inspection. Therefore, the Hon'ble High Court concluded that when float glass has been put to use and it was found defective, modvat credit cannot be denied. 10. Further in the case of Sudarshan Chemicals Industries Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the said fact with cogent evidence. Therefore the defence taken by the appellant is acceptable. Accordingly, I hold that there is no shortage of inputs as explained by the appellant. Further all the shortages/rejections have been supported by the chartered accountant certifying the same which has not been controverted by the Revenue with cogent evidence. In view of above, I hold that the appellant has taken modvat credit correctly and consequently they are not required to reverse the modvat credit taken by them. In the circumstances, the penalty is not imposable on the appellant. Therefore, I do not find any merit in the impugned order and the same is set aside. The appeal is allowed with consequential relief. (Order Pronounced in the o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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