2007 (9) TMI 354 - HC - Central Excise

High Court allows Modvat credit for lacquer duty, citing Rules and SC judgments, overturns Tribunal decision.

The High Court ruled in favor of the petitioner-assessee, allowing Modvat credit for duty paid on lacquers utilized in the job work procedures. The Court ... Cenvat Credit-Input used by job worker- The appellants had filed for the disallowance of Modvat credit was on the ground that appellants had not followed the procedure under Rule 57F(2) of the CE Rules. Since the lacquer had not been brought into the appellants factory but, were utilised by the job worker for lacquering polyester film, the appellants claimed Modvat credit of duty paid on the said lacquers. Further it was of the view that the lacquered polyester film received back from the job worker, did not subject to any process amounting to manufacture and also proceeded to hold that cutting to required size did not amount to manufacture and the procedure adopted by the appellants was in contravention of Rule 57F(3)(b) of the Rules and Modvat credit availed by them was required to be reversed for the period 27-8-1991 to 30-6-1992. In the light of the decision in the case of International Auto Ltd. v. CCE, Bihar, in which held that- the Scheme of Modvat permits the person who clears the ultimate final product to take the benefit of the Modvat scheme at the time of clearance of such final product. The manufacturer of the final product would therefore, be entitled not only to adjust the credit on the inputs supplied by it to the intermediate purchaser but also to the credit for the duty paid by the intermediate purchaser on its products, held that- Accordingly, we answer the questions referred to us in favour of the petitioner-assessee. Issues:1. Interpretation of Modvat credit under Central Excise Act.2. Compliance with Modvat Rules regarding input lacquer utilization and job work procedures.Issue 1: Interpretation of Modvat credit under Central Excise ActThe case involved an appeal against the rejection of Modvat credit and imposition of penalty by the Commissioner (Appeals). The appellants claimed Modvat credit for duty paid on lacquers utilized by a job worker for lacquering polyester film. The original authority disallowed the credit, citing non-compliance with Rule 57F(2) of the Central Excise Rules. It was contended that the lacquered film did not undergo a process amounting to manufacture, and the procedure adopted was in violation of Rule 57F(3)(b). The Tribunal upheld the original authority's decision, considering the modvat scheme under Rule 57A, 57G, and 57F, along with referencing the Supreme Court judgment in Ujagar Prints.Issue 2: Compliance with Modvat Rules regarding input lacquer utilization and job work proceduresThe Tribunal confirmed the impugned order, emphasizing the procedural non-compliance and lack of entitlement to Modvat credit due to substantial rule violations. The appellants sought reference of legal questions to the High Court, which was initially rejected by the Tribunal. However, the petitioner argued for the applicability of Rule 57F in a similar case involving Maruti Udyog Ltd., highlighting the interpretation of Rule 57F(2) and the absence of fraudulent intent. The petitioner also relied on the Supreme Court's decision in International Auto Ltd. v. CCE, Bihar, emphasizing the entitlement of manufacturers to adjust credit on inputs supplied and duty paid by intermediate purchasers. The High Court, considering the previous tribunal decision and Supreme Court rulings, favored the petitioner, answering the questions of law in their favor and allowing the Modvat credit.In conclusion, the High Court ruled in favor of the petitioner-assessee, emphasizing compliance with Modvat Rules and the entitlement to Modvat credit based on the interpretation of relevant provisions and Supreme Court judgments.