2001 (2) TMI 230 - AT - Central Excise

Modvat credit allowed on polyester staple fiber for blended yarn production

The Member (J) upheld the Commissioner (Appeals)' decision to allow Modvat credit on polyester staple fibre used in manufacturing polyester/cotton blended ... Modvat credit - intermediate product - Rule 57D(2) of the Central Excise Rules, 1944 - specified inputs under Rule 57A - exemption or nil-rate intermediate product - disentitlement of credit - Ballarpur Industries Ltd. Larger Bench ratioModvat credit - intermediate product - Rule 57D(2) of the Central Excise Rules, 1944 - specified inputs under Rule 57A - exemption or nil-rate intermediate product - Credit of duty on polyester staple fibre is admissible despite emergence of carded/combed cotton as an intermediate product which is not specified under a Notification issued under Rule 57A. - HELD THAT: - The Tribunal accepted the reasoning of the Commissioner (Appeals) and applied the Larger Bench ratio in Ballarpur Industries Ltd. Paras 8 and 9 of that decision establish that Rule 57D(2) does not create a condition precedent whose non-fulfilment disentitles an assessee to Modvat credit; rather Rule 57D(2) protects an assessee from denial or variation of credit where an intermediate product is exempt or chargeable to nil rate, and the rule must be read in conjunction with the general scheme for allowance and disallowance of credit. In the present case it is admitted that the intermediate product (carded/combed cotton) is not leviable to duty; accordingly, mere emergence of that intermediate product - which also contains polyester fibre and is not dutiable - cannot defeat the assessee's entitlement to credit on polyester staple fibre. Applying the Ballarpur ratio, the Commissioner (Appeals) rightly allowed Modvat credit and there was no basis to restore the original order denying credit.The Commissioner (Appeals)' order allowing Modvat credit is sustained; Revenue's appeal is dismissed.Final Conclusion: The appeal is dismissed. The Tribunal upholds the Commissioner (Appeals)' finding that Modvat credit on polyester staple fibre is admissible despite the emergence of carded/combed cotton as an intermediate product, applying the Larger Bench ratio that Rule 57D(2) does not operate as a condition precedent to deny credit where the intermediate product is not dutiable. Issues:- Whether Modvat credit is required to be extended to Polyester staple fibre used for manufacture of Polyester/cotton blended yarn despite the emergence of intermediate product carded/combed cotton.Analysis:1. The issue in this case revolves around the admissibility of Modvat credit on polyester staple fibre used in the manufacture of polyester/cotton blended yarn, considering the emergence of carded/combed cotton as an intermediate product. The Assistant Commissioner denied the Modvat credit, stating that carded/combed cotton was not specified as an input or final product under the Notification issued under Rule 57A. However, the Commissioner (Appeals) disagreed, citing Rule 57D(2) which states that credit of specified duty allowed in respect of any inputs shall not be denied on the ground that intermediate products have emerged during the manufacturing process, as long as those intermediate products are specified as inputs or final products under a Notification issued under Rule 57A.2. The Revenue contended that the matter was remanded by CEGAT to determine whether the intermediate product was marketable. They argued that the Commissioner (Appeals) did not adhere to CEGAT's direction and that Modvat credit should not be extended to Polyester staple fibre used in the manufacturing process. The Revenue raised various reasons in the appeal memo to support their stance.3. The learned SDR strenuously argued for the restoration of the Order-in-Original based on the grounds raised in the appeal, emphasizing the need to deny the Modvat credit.4. On the other hand, the appellants' counsel argued that the Commissioner (Appeals) correctly addressed the issue under Rule 57D(2) and upheld the assessee's contention. They referred to a Larger Bench decision which clarified that the fulfilment of Rule 57D(2) is not a condition precedent for claiming Modvat credit. The counsel highlighted that the absence of duty on the intermediate product, carded/combed cotton, supported the allowance of Modvat credit, as per the Larger Bench judgment.5. After considering the arguments and the Larger Bench judgment, the Member (J) concluded that the Commissioner (Appeals) rightly allowed the Modvat Credit. The judgment emphasized that the emergence of an intermediate product alone is not sufficient to deny Modvat credit unless the final product is exempted or the intermediate product is dutiable. Since no duty was leviable on the intermediate product in this case, the Commissioner (Appeals)' decision was upheld, and the Revenue appeal was dismissed.