1994 (4) TMI 151 - AT - Central Excise

Final Order Upholds Collector's Decision on Rule 57D Credit for BOPP Films

The final order upheld the Collector (Appeals)'s decision, rejecting the appeals of the Revenue. The majority opinion affirmed that Rule 57D applies to ... Modvat credit - Waste and scrap Issues Involved:1. Applicability of Rule 57D of the Central Excise Rules, 1944 to waste and scrap generated during the manufacture of BOPP films.2. Recovery of Modvat credit on inputs used in manufacturing waste and scrap.3. High percentage of wastage in the manufacturing process.4. Treatment of waste material reutilized for recycling and production of granules.Issue-wise Detailed Analysis:1. Applicability of Rule 57D of the Central Excise Rules, 1944 to waste and scrap generated during the manufacture of BOPP films:The primary issue is whether Rule 57D applies to waste and scrap generated during the manufacture of BOPP films, which are cleared under Heading 39.15 of the Central Excise Tariff Act, 1985 at nil rate of duty. The respondents manufacture BOPP films and avail Modvat credit on inputs like Polypropylene copolymer, monopolymer, and compound under Rule 57A. The Assistant Collector denied the applicability of Rule 57D due to high wastage (67.76%) and confirmed the recovery of credit. The Collector (Appeals) extended the benefit of Rule 57D, holding that the rule does not deny credit based on the quantum of waste.2. Recovery of Modvat credit on inputs used in manufacturing waste and scrap:The Department issued show cause notices proposing the recovery of Modvat credit on inputs used in manufacturing waste, scrap, and paring, arguing that Rule 57D does not apply due to the high percentage of wastage. The Assistant Collector confirmed these demands. However, the Collector (Appeals) set aside these orders, stating that the rule covers credit on inputs contained in waste, irrespective of the quantum.3. High percentage of wastage in the manufacturing process:The Department's argument was based on the high percentage of wastage during the manufacturing of BOPP films. The Collector (Appeals) noted that the adjudicating authority did not consider whether the high wastage was justified or supported by field reports. The respondents argued that the high wastage was due to initial setup problems and power trippings, which the Department did not counter. The final product, BOPP films, is cleared on payment of duty, and the credit of inputs in waste is covered by Rule 57D.4. Treatment of waste material reutilized for recycling and production of granules:The Vice President observed that waste material reutilized for recycling and production of granules should be treated differently. The benefit under Rule 57D should only extend to material treated and disposed of as waste, not to quantities reutilized for producing granules, which are sold to independent buyers. He suggested remanding the matter to the Assistant Collector for de novo consideration. However, the Judicial Member disagreed, stating that remand should not cover deficiencies or create a new case.Separate Judgments:Judgment by Member (J):The Judicial Member upheld the Collector (Appeals)'s order, rejecting the Department's appeal. He emphasized that Rule 57D covers credit on inputs in waste, irrespective of the quantum, and the Department failed to disprove the respondents' claims about initial setup problems causing high wastage.Judgment by Vice President:The Vice President proposed remanding the matter to the Assistant Collector, arguing that the benefit under Rule 57D should not extend to waste material reutilized for producing granules. He emphasized the need to consider the extent of reutilization and the resulting product.Final Order:The Third Member concurred with the Judicial Member, stating that the remand should not cover deficiencies or create a new case. The final order upheld the Collector (Appeals)'s decision, rejecting the appeals of the Revenue.Conclusion:In view of the majority opinion, the impugned order was upheld, and the appeals were rejected, affirming that Rule 57D applies to credit on inputs contained in waste arising during the manufacture of BOPP films, irrespective of the quantum of waste.