2009 (1) TMI 559 - AT - Central Excise

Tribunal rules coating steel bars not manufacturing; Modvat credit cannot be reversed if correctly utilized. Appeal allowed.

The Tribunal held that the activity of applying fusion bonded epoxy coating on reinforced steel bars did not amount to manufacture. Regarding the reversal ... Manufacture - Modvat credit - reversal of input credit - no one-to-one correlation in credit scheme - final product becoming exempt subsequentlyModvat credit - reversal of input credit - manufacture - no one-to-one correlation in credit scheme - Whether credit availed on inputs used in final product stocked as on 31-7-03 and cleared without payment of duty after 31-7-03 was required to be reversed when the activity of coating was held not to be manufacture and the final product became duty-free. - HELD THAT: - The Tribunal applied the settled position in Large Bench decisions, most recently in M/s. H.M.T v. CCE, Panchcula, 2008 (232) E.L.T. 217 (Tri.-LB), that there is no rigid one-to-one correlation in the credit scheme. Credit legitimately taken and utilized when the final product was dutiable cannot be held automatically reversible merely because the final product subsequently becomes exempt or duty-free. Applying that ratio, the demand for reversal of input credit in respect of the stock/clearances in question was not sustainable.Impugned order set aside; appeal allowed and consequential relief granted to the appellant.Final Conclusion: Applying the Tribunal's Larger Bench precedent that there is no one-to-one correlation in the Modvat/credit scheme, the demand for reversal of input credit in respect of goods stocked and cleared without payment of duty around 31-7-03 is untenable; the appeal is allowed. Issues involved: Determination of whether the activity of applying fusion bonded epoxy coating on reinforced steel bars amounts to manufacture and the reversal of Modvat credit on inputs used in final products cleared without duty payment.Issue 1 - Activity of applying fusion bonded epoxy coating:The appellants were engaged in applying fusion bonded epoxy coating on reinforced steel bars. A dispute arose with the Central Excise authority regarding whether this activity constituted manufacture. The Tribunal, in a previous order, held that the coating of steel bars does not amount to manufacture. Consequently, the appellants ceased paying duty on their final products and stopped availing Modvat credit for inputs.Issue 2 - Reversal of Modvat credit on final products cleared without duty payment:As of July 31, 2003, the appellants had a stock of final products that were cleared without duty payment, leading the Revenue to assert that the Modvat credit availed on inputs used in these products must be reversed. The Tribunal referred to a Larger Bench decision in the case of M/s. H.M.T v. CCE, which emphasized that there is no direct correlation in the credit scheme. It was held that if the credit was correctly utilized when the final product was dutiable, it cannot be reversed when the final product becomes exempted subsequently.In conclusion, the Tribunal, following the precedent set by the Larger Bench decision, set aside the impugned order and allowed the appeal, providing consequential relief to the appellant.