2001 (2) TMI 226 - AT - Central Excise

Modvat credit on intermediate polyester/polymer chips cleared duty-free u/r 57F(4) and Rule 57C, allowed

Whether Modvat credit was deniable under Rule 57C where intermediate polyester/polymer chips were removed without duty under Rule 57F(4) pursuant to ... Modvat - removal of the polyester chips without payment of duty was in terms of Rule 57F(4) - Scope of Notification 214/86-C.E. in relation to Rule 57C - manufacture of polyester/polymer chips falling under CET Sub-heading 3907.80 on job work basis - Levy of penalty of equal amount under Rule 57-I(4) and Rule 173Q, and levied interest under Rule 57-I(5) at the rate of 18% - HELD THAT:- Under the Modvat scheme, credit of duty paid on notified inputs is to be given for payment of duty on the notified final products, if such inputs are used in or in relation to the manufacture of final products and such inputs are not hit by explanation to Rule 57A. Exemption Notification 217/85 is not on par with Notification 217/86 the latter notification is esoteric to Modvat scheme and is entirely based on the concept, whereas Notification 217/85 is a notification foregoing revenue on I.C. engine parts used in I.C. Engines irrespective of whether they are dutiable or exempted. Hence, the scope of Rule 57C in a situation like the present one, is to be construed in the context of the Modvat scheme and not to destroy that concept. Any interpretation in such a situation has to be to give effect to Notification 217/86 and not to take away the benefit of averting duty payment at each stage in the line of production. Hence, a mechanical application of Rule 57C, is to be avoided, since it destroys the very benefit, which is otherwise available under the scheme right from stage one to the final stage. In the case of disintegrated production, credit is available from stage one by paying duty at each finished stage and taking credit of such duty in the other units down the line, whereas in the case of vertically integrated production units the same benefit is sought to be conferred by averting payment of duty at each stage and postponing the availment of credit to the final stage of manufacture. This is now, we could interpret the provisions of Rule 57C in the context of Notification 217/86. Any other interpretation will frustrate the object of the scheme, apart from leading to discrimination between vertically integrated production line and laterally disintegrated production amongst different units. In both the Notifications viz. 214/86 and 217/86, the requirement is that the final products should be those on which duty of excise is leviable. In the context of Bajaj Tempo [1993 (8) TMI 189 - CEGAT, BOMBAY], the Tribunal has extended the chain of credit up to the stage of final products viz. motor vehicles which are cleared on payment of duty. On an analysis of the Bajaj Tempo decision, we are of the view that the principle laid down therein would be equally applicable to the facts of the present case. Hence, following the ratio of the above decision cited supra, we hold that the appellants are entitled to Modvat credit of the amount disallowed by the adjudicating authority, set aside the denial of credit and the imposition of penalty. The impugned order is set aside and the appeal allowed with consequential relief. Since the appeal is being allowed on the ground that the appellants are entitled to the benefit of Notification 214/86, we are not recording any finding on the other arguments raised by the appellants. Issues Involved:1. Admissibility of Modvat credit u/r 57C of the Central Excise Rules.2. Applicability of Notification 214/86-C.E. in relation to Rule 57C.3. Interpretation of Tribunal decisions in similar contexts.Summary:1. Admissibility of Modvat credit u/r 57C of the Central Excise Rules:The appellants, a division of Jindal Polyester Ltd., engaged in manufacturing polyester/polymer chips, received inputs from M/s. Jindal Polyester Ltd. and availed Modvat credit on certain inputs. The Department contended that credit was not admissible as Rule 57C prohibits Modvat credit on inputs used in the manufacture of final products cleared at nil rate of duty unless Rule 57CC is followed. The adjudicating authority upheld this view, disallowing credit of Rs. 44,91,828/- and imposing a penalty of equal amount along with interest at 18%.2. Applicability of Notification 214/86-C.E. in relation to Rule 57C:The appellants argued that the removal of polyester chips without payment of duty was permissible u/r 57F(4), which is a self-contained provision, and thus Rule 57C's mischief was not attracted. They cited Tribunal decisions in similar contexts, asserting that Notification 214/86 is not hit by Rule 57C. The Department countered that the appellants were operating under Notification 214/86 and that Modvat credit is not admissible for inputs used in the manufacture of final products cleared free of duty under an exemption notification.3. Interpretation of Tribunal decisions in similar contexts:The Tribunal examined the applicability of the Bajaj Tempo Ltd. decision, which dealt with Notification 217/86, and found it relevant. In Bajaj Tempo, the Tribunal held that Notification 217/86 should be harmoniously construed with Rule 57C to avoid duty payment at each stage and postpone credit availment to the final stage of manufacture. Applying this principle, the Tribunal concluded that the appellants were entitled to Modvat credit, as the polyester/polymer filament yarn was cleared on payment of duty by the parent manufacturer.Conclusion:The Tribunal set aside the denial of credit and the imposition of penalty, allowing the appeal with consequential relief, based on the principle that Notification 214/86 should be interpreted similarly to Notification 217/86, extending the chain of credit to the final product cleared on payment of duty. The appeal was allowed on this ground, and no findings were recorded on other arguments raised by the appellants.