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TMI Blog2017 (11) TMI 1104X X X X Extracts X X X X X X X X Extracts X X X X ..... nt, without considering that the Respondent itself was unable to specify and identify the stage of such defect/wastage which clearly had to conclude that the inputs supplied to the Respondent were ad-initio defective inputs unfit for use in the manufacture of the final product ? (2) Whether on the facts and in the circumstances of the case, the Tribunal is justified in holding that there was no shortage of inputs on the ground that in some cases, inputs were short accounted and in some cases inputs were found in excess, therefore the shortage of one inputs gets nullified with the excess of another inputs ?" We have heard Sri Krishna Agrawal, learned counsel for the appellant/revenue and Sri Sriniwas Kotni, Advocate assisted by Sri Nishant Mishra, learned counsel for the assessee. Brief facts of the case are that the respondent company M/s Timex Watches Limited was engaged in the manufacture of wrist watches and parts falling under Central Excise Tariff heading Nos. 91.01 and 91.02 of the Schedule to the Central Excise Tariff Act, 1985. It is alleged that the company have contravented the provisions of Rule 52-A, 57-A, 57-F(3), 173(F) and 173 (G). A team of Central Excise Offic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xcise has passed an order-in-original dated 25.10.2000 by which the Commissioner of Central Excise has disallowed the credit of Rs. 28,24,339/- and has issued a demand of the said amount under Rule 57(i) along with interest as per the provisions of Rule57(i)(5). This order passed by the Commissioner, Central Excise dated 25.10.2000 has been challenged by the assessee before the CESTAT in Appeal No. E/321/2001-NB (DB). The said appeal filed by the assessee before the Division Bench of the CESTAT has been allowed by the CESTAT and the matter has been remanded to the Commissioner to decide the issue as raised by the assessee company afresh. Before the Tribunal the issued has been raised by the assessee as to whether the inputs on which the assessee has taken MODVAT credit have been put to use for manufacturing of watches or not and as to whether there was shortage of inputs in the facts and circumstances of the case of the assessee. After consideration of the issue and after hearing the parties the Division Bench of the Tribunal has found that while deciding the case the main issue i.e. that the disputed watch parts in respect of which the MODVAT credit has been availed by the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... far as it has recorded that no shortage of inputs on the ground that in some case inputs were found short and in some cases inputs were found in excess. On the other hand, the counsel for the assessee company has submitted that in fact the instant appeal filed by the appellant is without any basis as such is a result of non appreciation of the facts in its true sense and correct prospective therefore, the appeal is liable to be dismissed. He has submitted that even the questions of law which are framed are based on facts as such no legal issue is involved in the instant appeal. He has further submitted that the Tribunal has considered the factual submissions, the scientific coding (which is clear from the SCN and other proceedings itself) of different parts in the report for defective works, the C.A. Certificates and the process followed by the respondent for rejecting to come to a conclusion that all the rejections with respect to which the respondent has not debited the MODVAT credit were rejected during the manufacturing process only. He has further submitted that the conclusion arrived at by the Tribunal is purely a factual conclusion and there is no question of any point of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... D of the Rules ibid specifies as under: "Rule 57D. Credit of the duty not to be denied or varied in certain circumstances.- (1) Credit of the specified duty shall not be denied or varied on the ground that part of the input is contained in any waste, refuse, or by-product arising during the manufacture of the final produce, or that the inputs have become waste during the course of manufacture of the final products, whether or not such waste or refuse or by-product is exempt from the whole of the duty of excise leviable thereon or chargeable to nil rate or duty or is not specified as a final product under rule 57A. (2) Credit of specified duty shall also not be denied or varied in case any intermediate products have come into existence during the course of manufacture of final products or the inputs are used in the manufacture of capital goods as denied in rule 57Q and such intermediate products or capital goods are not chargeable to duty of excise." Learned counsel for the assessee has therefore, submitted that the inputs are lost/ destroyed or have become waste after they are received on the production floor in the factory premises. Further, the tests during which inputs we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... if any put which is being used in or in relation to the manufacture of final product are entitled for CENVAT credit. In this case these tests are required to manufacture the final product. Accordingly, the appellants are entitled for CENVAT credit availed on such inputs which went for testing and analysis to manufacture the final product. The CENVAT credit on capital goods used in R&D section is also entitled as the same has been used in or in relation to the manufacture of the final product." Learned counsel for the assessee has further relied upon the decision in the case of Flex Engineering vs. CCE 2012 (276) ELT 153 (SC), in which the Hon'ble Apex Court held that testing was inextricably connected with manufacturing process, and until it was carried out, manufacturing process was incomplete, and machines were not fit for sale and hence not marketable. In that view, goods used for testing machines were inputs used in relation to manufacture of final product, eligible for Cenvat/Modvat Credit. On facts it was held that flexible laminated plastic film and poly paper, used for testing, tuning and adjusting various parts of fill and seal machines, tailor made according to requi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as to whether the inputs to be usable or not. In respect of the inputs which were not found fit to be used, the assessee company has reversed credit thereon and rest of the inputs were issued by the respondent for process or assembling of watches, and during the course of manufacture of watches, certain inputs were found defective during further test and certain inputs were lost while manufacturing the goods. The CESTAT has further notices that for the aforesaid process the assessee company has made certain head 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-5 Defect due to components fabricated in house plastic/dial shop. M-6 Defects returned to the supplying vendors for salvage/p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ap a duty of Rs. 12,20,722/- was paid, therefore, without prejudice and in any case the benefit of MODVAT credit has to be given to the assessee company on the basis of relevant fact that the duty has been paid on scrap. It is further noticed that during the course of period in dispute the departmental officers were informed about the scraping of process rejections on various occasions. Apart from the aforesaid even the Commissioner, Central Excise has himself observed that the ripping open of manufactured watches also does not appear to be an essential requirement for manufacture as in the first place this exercise is not carried out in the manufacturing floor of the factory, as in none of the samples copy of "RDW" report the code of cause viz. Q1 & Q2 is mentioned. This effectively means that emergence of this waste is either prior or after the manufacturing process. The Q2 rejects/waste were in the nature of being emanating as result of Research & Development (R&D) process which is quite distinct fromo the manufacturing activity as contemplated in Rule 57A ibid. The Tribunal has further recorded categorical finding of fact in para 11 of its judgment, which is quoted hereinbelo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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