2018 (11) TMI 1363 - AT - Central Excise

Tribunal allows Modvat credit for reprocessing by-product, clarifies waste vs. product distinction

The Tribunal ruled in favor of the appellant, a manufacturer of BOPP films, allowing them to avail Modvat credit on Polypropylene Granules used to ... MODVAT/CENVAT Credit - Waste - part of RPG was also being cleared on payment of nil rate of duty - Rule 57C of CCR - Held that:- The issue is decided in the case of COMMR. OF C. EX. & CUS., AURANGABAD VERSUS COSMO FILMS LTD. [2014 (12) TMI 315 - CESTAT MUMBAI], where it was held that Rule 57D, as it stood at the relevant time, clearly laid down that credit of specified duty allowed in respect of any inputs shall not be denied or varied on the ground that part of the inputs is contained in any waste, refuse or by-product arising during the manufacture of final product, whether or not such waste, refused or by-product is exempted from whole of the duty of excise thereon or is chargeable to nil rate of duty or is specified as a final product under Rule 57A. The waste and scrap of plastic emerges as the by-product and not as a final product - appeal allowed - decided in favor of appellant. Issues Involved:Manufacturer availed Modvat credit on Polypropylene Granules but cleared waste and scrap of plastics without payment of Central Excise Duty. Allegation of irregular Modvat credit amounting to Rs. 1,71,26,749.90. Appellant manufactured reprocessing granules out of waste and scrap of plastic. Revenue claimed reversal of Modvat credit on imported Polypropylene granules. Appellant failed to inform Department about manufacturing RPGs. Dispute over classification of RPGs as manufactured product or by-product. Interpretation of Rule 57C of Central Excise Rules. Applicability of Notification No. 14/92 and Notification No. 53/88.Analysis:1. The appellant, a manufacturer of BOPP films, availed Modvat credit on Polypropylene Granules but cleared waste and scrap of plastics without paying Central Excise Duty. The issue revolved around the classification of RPGs as a manufactured product or a by-product arising from the processing of inputs. The Revenue alleged irregular Modvat credit availing amounting to Rs. 1,71,26,749.90, leading to a dispute over the interpretation of Rule 57C of the Central Excise Rules.2. The Adjudicating Authority treated RPG granules as a manufactured product instead of a by-product, arguing that the RPGs were manufactured from waste and scrap of plastic arising during the manufacturing process. However, the Hon'ble Tribunal cited precedents to establish that waste and scrap of plastic should be considered a by-product, not a final product, under Rule 57D, and upheld the appellant's right to avail Modvat credit on inputs contained in the waste and scrap.3. The appellant's failure to inform the Department about the manufacturing of RPGs was a key point of contention. The appellant argued that the RPGs were disclosed in the Classification List approved by the Department, indicating no malafide intent. The Department's argument that RPGs were classified as manufactured products was challenged based on the nature of waste and scrap arising as a by-product during the manufacturing process.4. The Tribunal referenced previous judgments to support its decision, emphasizing that waste and scrap of plastic should be considered a by-product eligible for Modvat credit. The Tribunal's analysis focused on the applicability of Notification No. 53/88 and the interpretation of Rule 57D in determining the eligibility of the appellant to avail Modvat credit on inputs contained in the waste and scrap of plastics.5. Ultimately, the Tribunal concluded that the impugned order was not sustainable, setting it aside and allowing the appeal in favor of the appellant. The decision highlighted the distinction between waste and scrap as a by-product and a final product, reaffirming the appellant's right to avail Modvat credit on inputs used in the manufacturing process.