2000 (8) TMI 109 - AT - Central Excise

Manufacturer entitled to full small-scale duty exemption if Modvat/credit for duty-free inputs is reversed before removal

CEGAT (Court No. III, New Delhi) allowed the appellant's appeal and set aside the Commissioner (Appeals) order, holding that the manufacturer may claim ... SSI Exemption vis-a-vis Modvat - benefit of full exemption under small scale exemption Notification - HELD THAT:- It is true that the assessee has not maintained separate accounts or segregated the inputs utilised for manufacture of dutiable goods and duty free goods, as should have been done. The contention of the Department that in this situation, the assessee is not entitled to reverse the entries and get the benefit of the tax exemption is a question which merits serious consideration. There is no doubt that the assessee should have maintained separate accounts for duty free goods and the goods on which duty has to be paid. This circular deals with a case where the manufacturer produces duti­able final products and also final products which are exempt from duty and it is not reasonably possible to segregate inputs utilised in manufacture of the dutiable final products from the final products which are exempt from duty. In such a case, the manufacturer may take credit of duty paid on all the inputs used in the manufacture of final products on which duty will have to be paid. Thus, we see no reason why the assessee cannot make a debit entry in the credit account before removal of the exempted final product. If this debit entry is permissible to be made, credit entry for the duties paid on the inputs utilised in manufacture of the final exempted product will stand deleted in the accounts of the assessee. In such a situation, it cannot be said that the assessee has taken credit for the duty paid on the inputs utilised in the manufacture of the final exempted product under Rule 57A. In other words, the claim for exemption of duty on the disputed goods cannot be denied on the plea that the assessee has taken credit of the duty paid on the inputs used in manufacture of these goods. Drawing the similar analogy, we consider that subject to the reversal of the Modvat credit taken with regard to the inputs which were utilised for the manufacture of duty free goods, the manufacturer could avail of the Modvat credit as well as the full duty exemption under the applicable small scale exemption Notification with regard to the same specified goods. As a result, the impugned Order-in-Appeal, dated 28-1-1999 passed by the Commissioner of Central Excise (Appeals) is set aside and the appeal of M/s. Franco Italian Co. Pvt. Ltd. is allowed subject to the condition that the Modvat credit taken of the duty paid on the inputs which were utilised for the manufacture of duty free goods, is reversed. Issues Involved:The issue involves whether an assessee can simultaneously avail the benefit of Modvat credit and full exemption under a small scale exemption notification for the same specified goods.Summary:The appeal before the Appellate Tribunal CEGAT, Court No. III, New Delhi, was referred to a Larger Bench to determine if an assessee could avail the benefits of Modvat credit and full exemption under a small scale exemption notification for the same specified goods. The Tribunal had previously held that these benefits could be availed simultaneously for different specified goods. However, a conflicting decision by the Tribunal in another case raised questions. The Supreme Court had confirmed the earlier decision, emphasizing the doctrine of merger.The appellants argued that their case was similar to a previous Tribunal decision, but the Revenue had filed an appeal against it. The issue was whether goods manufactured by the appellants could be considered different based on brand names. The Tribunal considered the matter in light of previous decisions and Supreme Court rulings.The Tribunal referred to a Supreme Court case involving the reversal of Modvat credit for duty-free goods, allowing for the availment of both Modvat credit and full duty exemption for the same specified goods. Following this precedent, the Tribunal set aside the Commissioner of Central Excise's order and allowed the appeal, subject to the condition of reversing Modvat credit for duty-free goods.Separate Judgment:No separate judgment was delivered by the judges in this case.