Modvat credit and Rule 57CC on rectified spirit cleared for country liquor manufacture were upheld, with remand for quantification and penalty review.

Modvat credit on levy molasses used to manufacture rectified spirit remained admissible even though the spirit was ultimately used in the manufacture of country liquor, following the Tribunal's earlier ruling in the assessee's own case. The Tribunal also held that Rule 57CC applied to clearances of rectified spirit for non-excisable manufacture, requiring computation of 8% of the value of such clearances. The matter was remanded for fresh quantification of the amount payable or reversible under Rule 57CC and for reconsideration of penalty in light of the assessee's bona fide belief and the earlier order.

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Issues: (i) Whether Modvat credit on levy molasses used for manufacture of rectified spirit was admissible when the spirit was ultimately used for manufacture of country liquor; (ii) Whether Rule 57CC of the Central Excise Rules applied so as to require payment of an amount at the rate of 8% of the value of rectified spirit cleared for such non-excisable manufacture, and whether penalty required reconsideration.

Issue (i): Whether Modvat credit on levy molasses used for manufacture of rectified spirit was admissible when the spirit was ultimately used for manufacture of country liquor.

Analysis: The controversy was treated as covered by the Tribunal's earlier decision in the assessee's own case on similar facts. That decision had already held that Modvat credit on levy molasses was available, even though the rectified spirit was used in relation to the manufacture of non-excisable goods. The earlier decision was treated as binding on the Revenue and applicable to the present appeals.

Conclusion: Modvat credit on levy molasses was admissible to the assessee.

Issue (ii): Whether Rule 57CC of the Central Excise Rules applied so as to require payment of an amount at the rate of 8% of the value of rectified spirit cleared for such non-excisable manufacture, and whether penalty required reconsideration.

Analysis: The Tribunal held that, on the same reasoning as in the earlier order, the assessee was liable to pay 8% of the value of rectified spirit cleared for use in the manufacture of country liquor. The matter was therefore sent back to the adjudicating authority to compute the amount payable or reversible under Rule 57CC and to re-examine penalty in the light of the assessee's bona fide belief and the earlier order.

Conclusion: Rule 57CC applied, the 8% amount had to be worked out, and penalty was left open for fresh consideration on remand.

Final Conclusion: The denial of Modvat credit and the penalty orders were set aside, and the matter was remanded for fresh determination of the amount under Rule 57CC and for reconsideration of penalty.

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