2004 (1) TMI 721 - AT - Central Excise

Court upholds decision on duty credit for inputs in finished goods

Commissioner of Central Excise Versus K.S.H. International Ltd.

The court dismissed the revenue's appeal challenging the order-in-appeal regarding the credit of duty paid on inputs used in finished goods exempted from ... - Issues:- Challenge to impugned order-in-appeal regarding credit of duty paid on inputs used in finished goods exempted from duty- Applicability of longer period of limitation for maintaining demand- Merit of the demand for reversing the credit of duty paid on inputsAnalysis:1. The appeal filed by the revenue challenges the order-in-appeal passed by the Commissioner (Appeals) regarding the credit of duty paid on inputs used in finished goods exempted from duty. The respondents, manufacturers of paper insulated copper/aluminium strips, undertake partial production on a job work basis for their principal manufacturers. The craft paper used by the respondents for manufacturing is from their own stock, and they have taken modvat credit on it. The revenue contends that taking such credit is not permitted under Rule 57C of the Central Excise Rules 1944. The demand of &8377; 9,02,455/- was initially dropped by the adjudicating authority on the ground of limitation, which was upheld by the Commissioner (Appeals), leading to the current appeal.2. The main ground of appeal raised by the revenue is the maintainability of the demand based on the longer period of limitation. The original authority had already held that the demand is sustainable on merit. However, the respondents argue that the issue on merit is in their favor, citing the judgment of CEGAT in the case of Shakti Insulated Wires Ltd. v. CCE, Mumbai-IV. They rely on the precedent set by the judgment in the case of Jindal Polymers v. CCE to support their position that clearances of finished goods on a job work basis, without payment of duty, do not equate to clearance of finished goods under full exemption or at nil rate of duty, as the finished goods are later cleared from the principal manufacturer's premises on payment of duty.3. The presiding judge, in line with the legal precedent cited by the respondents, rejects the revenue's appeal. By following the ratio of the law established in the mentioned judgments, the judge determines that the demand for reversing the credit of duty paid on inputs used in finished goods exempted from duty is not sustainable. Consequently, the revenue's appeal is dismissed.