1996 (3) TMI 197 - AT - Central Excise

Tribunal restores Modvat credit, reclassifies spent sulphuric acid

The Tribunal allowed the appeal, restoring the Modvat credit disallowed by the Collector (Appeals) and setting aside the classification of spent sulphuric ... Modvat - Adjudication Issues:1. Denial of Modvat credit on inputs used in manufacturing process.2. Classification of spent sulphuric acid recovered during manufacturing process.3. Scope of order-in-original versus order-in-appeal.Analysis:Issue 1: Denial of Modvat credit on inputs used in manufacturing processThe appeal challenged the denial of Modvat credit by the Collector of Central Excise (Appeals) regarding the inputs, specifically sulphuric acid, used in the manufacturing process. The appellant argued that the spent sulphuric acid recovered during the process should not result in the disallowance of the Modvat credit. Citing the Tribunal's decision in Nirma Chemical Works case, the appellant contended that the spent sulphuric acid should not be classified under Chapter 28 but under Heading 38.23. The appellant emphasized that the Modvat credit taken on the inputs should be permissible for discharging duty liability on the spent sulphuric acid. The Tribunal, after considering the arguments, found that the spent sulphuric acid recovered was not the same as the starting material and should not be treated as such. The judgment of the Allahabad High Court in Varuna Sulphurators case was cited to support the conclusion that the entire relevant quantity of sulphuric acid used in the manufacturing process should be eligible for Modvat credit, even if not fully assimilated in the final product.Issue 2: Classification of spent sulphuric acid recovered during manufacturing processThe classification of the spent sulphuric acid recovered during the manufacturing process was a point of contention. The Collector (Appeals) had classified the spent sulphuric acid under Chapter 28, which was contrary to the appellant's argument and the Tribunal decision in the Nirma Chemical Works case. The Tribunal held that the spent sulphuric acid should not be classified under Chapter 28 but under Heading 38.23. The judgment emphasized that the spent sulphuric acid was part of the manufacturing process and should not be considered a separate product from the starting material, namely sulphuric acid.Issue 3: Scope of order-in-original versus order-in-appealThe appellant raised a procedural issue regarding the scope of the order-in-original versus the order-in-appeal. It was argued that the Collector (Appeals) had exceeded the scope of the Assistant Collector's order by delving into the classification of the spent sulphuric acid, which was not addressed in the original order. The Tribunal agreed with this argument and set aside the Collector (Appeals) decision on the grounds that it went beyond the limited scope of the original order, which was focused on the disallowance of Modvat credit. The Tribunal clarified that if the Department intended to recover duty on the spent sulphuric acid, separate proceedings would need to be initiated, distinct from the Modvat credit disallowance proceedings.In conclusion, the Tribunal allowed the appeal, directing the restoration of the Modvat credit disallowed by the Collector (Appeals) and setting aside the classification of spent sulphuric acid under Chapter 28. The judgment emphasized the importance of considering the entire relevant quantity of inputs used in the manufacturing process for Modvat credit eligibility and the need for procedural adherence to the scope of original orders in subsequent appeal decisions.