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TMI Blog2003 (3) TMI 729X X X X Extracts X X X X X X X X Extracts X X X X ..... the forgings under the provisions of rule57F{4) of the Central Excise Rules as existed then. The Appellants manufactured the gears and returned the same to the respective customers following the prescribed procedure in the said rules. b. The customers supply their forgings but they do not follow the procedures prescribed under Rule 57F(4). The Appellants clear the goods on payment of duty as in respect of their own products. 3. In either of the categories the customers only supply the forgings. The consumables and other inputs which are necessary in or in relation to the manufacture of such finished automotive gears were provided by the Appellants in the course of manufacture in their own factory. 4. The Appellants have made necessary declaration under Rule 57Gin respect of inputs that are used in or in relation to the manufacture of final product. The forgings are subjected to I so thermal Annealing Process in the furnaces. These furnaces use light diesel oil as fuel in the process of forgings. When the forgings are subjected to Annealing cycle, it achieves microstructure that helps in machining of the forgings such as Turning/Gear Cutting/Drilling/Milling/Reaming. The ot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icon Powder in an oil and poured on to the pair in a closed chamber. The pair rotates under load and few microns are removed frommating flanks, which improves the rolling condition of the pair. Some of the customers specify phosphating and or short penning as a special process to be earned out at final stage. Shot peening is carried out in a special purpose machine using special grade steel shots; which impinge on the tooth flanks and impart the compressive stresses in the tooth fillet areas, thereby improving the fatigue life of gears in bending. Phosphating is carried out using special phosphating chemicals in a special set up, where Manganese Phosphate layer of 3-4 microns is provided on gear profiles. This helps in providing lubrication to the gears during running in period for first 500-1000 Km, when vehicle is new. The gears are inspected and sent to the Finished Goods Stores for packing. For each type of gears, a separate instruction sheet is prepared to give details of type of rust preventive oil that should be used and type of boxes to be used for packing the gears. 6. In para 4 of the statement of facts, it is described as follows. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /86 dt.1.3.1986 as amended. It was also seen that the main process involved on working upon the raw material supplied by others is forging, machining etc. The assessee receive the raw materials in the form of forgings of iron and steel falling under Ch. 72 of the C.E.T.A.,1985. Thereafter, these forgings are subjected to the process of turning, machining, heat treatment and lubrication etc. In the factory premises of the said assessee they have installed furnaces for heating the processed goods. These furnaces are working on L.P.G./L.D.O, The said assessee have not installed any separate storage tanks for the storage of inputs used for the heat treatment to be given to the goods processed on job-work basis and goods processed on their own account seperately. Similarly, the said assessee have no separate furnaces for the proceeding of goods received from others and for the processing of , goods on their own account. It also had been found that these furnaces run continuously round the clock and therefore the consumption of L.P.G./L.D.O.(declared input) is continuous without any interruption. It was also seen that on working upon the raw materials supplied by others for processing on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ./L.D.O. and the said other inputs for the manufacture of their final products in the factory. The said assessee consumed the inputs namely L.P.G./L.D.O. and the said other inputs for the processing of the raw materials or inputs received from others on job-work basis under the provisions of Rule 57P(4) read with Notfn. No. 214/86 dt.1.3.1986 (as amended) which were not their final products and hence the credit availed on the total quantity of inputs namely L.P.G./L.D.O. and the said other inputs involving amount of credit to a tune of ₹ 11,91,756/- (Rupees Eleven Lacs Ninety One Thousand Seven Hundred Fifty Six only) as detailed in Annexure-A to this notice is in contravention of sub-rule 1 of Rule 57A read with sub-rule 1 of Rule 57G of the Central Excise Rules, 1944 and therefore the entire amount of ₹ 11,91,756/-(Rupees Eleven Lacs Ninety One Thousand Seven Hundred Fifty Six only) is inadmissible. 9. The process of the manufacturing is mentioned in reply to show cause notice in letter dated 20.8.1999. It has been specifically stated as follows. 1.1 In our registered factory at Mumbra, we manufacture Automotive gears falling under heading 8708.00 and other go ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the appellant that application of Rule 57C in this case is wrong. 11. Moreover in the judgement of the Tribunal in the case of Jindal Polymers case supra where in similar situation Modvat Credit has been granted to the Job Worker. Provisions of Rule 57C of the Central Excise Rules has been explained by the Tribunal in the case of Bajaj Tempo Ltd. and Anr. v. CCE, Pune Reported in 1994 (69) ELT122 = 1994 (50) ECR 549 (T). 12. We extract from the decision of the Bajaj Tempo. It is held that the Job worker is entitled to claim modvat credit. In the said case at paragraph 6.3 it is stated as follows. 6.3 Now, we look at Rule 57C. As per this Rule, no credit on inputs should be allowed, if the final product is exempt for the whole of the duty of excise leviable thereon or is chargeable to nil' rate of duty. What would be the consequence in a situation as is seen in the cases before us, when Rule 57C is applied in the manner as pleaded by J.D.R.? To illustrate, taking the case of Bajaj Tempo, they bring duty paid steel materials from outside declaring them to be inputs for the product 'Motor Vehicle Parts' or 'l.C.Engine' and take Modvat credit. But t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s are not hit by explanation to Rule 57A. This same concept is clearly discernible in Notification 217/86. This notification is mainly intended to avert payment of duty at each intermediate stage and take credit of such duty at each subsequent stage, starting from the basic materials, turning out components and finally ending with the ultimate final product. Such a vertical integration of production line can be in one and the same factory or spread over two or more factories of the same manufacturer. In such cases Notification 217/86 can be availed. They also can take Modvat credit on primary inputs used in the manufacture of secondary inputs (M.V. parts, I.C. engines) so long as the final product namely Motor vehicle pays duty. Hence, we are to agree with the Id. Counsel Shri Lodha that Notification 217/86 stands on a different footing, when it comes for consideration for purposes of applying Rule 57C. It is not like any other exemption, where intention is to forego the levy on the products cleared from the factory. 7.3 But the Id. JDR points out the decision of this Bench in Kirloskar Oil Engines - 1993 (67) ELT 412 (T) = 1933 (42) ECC 153(WRB) = 1993 (48) ECR 303 (T). We have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the final stage of manufacture. This is now, we could interpret the provisions of Rule 57C in the context of Notification 217/86. Any other interpretation will frustrate the object of the scheme, apart from leading to discrimination between vertically integrated production line and laterally disintegrated production amongst different units. 13. The decision of the Tribunal in Bajaj Tempo has been followed in Jindal polymers 2001 (43) RLT 680 and shofc Organic Industries Ltd. v. CCE, Vadodara, Appeal 244/96 Order CII 2297/WZB/2001 dated3.9.2001 where in a similar situation it was held that Job Worker isentitled to Modvat Credit. We follow both the decisions in this instant case. It is to be held that when a manufacturer produces as a job worker out of raw material given by the principal manufacturer a product or undertakes certain process on such raw materials then it is considered as an intermediate product. Rule 57C of the C.Ex. Rules will not come into play in that circumstance. But such a job worker manufacturers the same product which he manufactured for the principal manufacturer, out of the raw materials produced by him,(Job worker) and if such a product is exempted fr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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