2000 (9) TMI 375 - AT - Central Excise

Modvat credit upheld for duty-free factory transfers under Notification 217/86, emphasizing clarity and consistency.

The Tribunal held that Modvat credit cannot be denied under Rule 57C for removal of inputs between factories under Notification 217/86, aligning with the ... Reference to High Court Issues:1. Applicability of Modvat credit under Notification 217/86 for removal of inputs between factories.2. Interpretation of Rule 57C of the Central Excise Rules in the context of Modvat scheme.3. Comparison of removals under Notification 217/85 and 217/86 for application of relevant legal principles.Issue 1: Applicability of Modvat credit under Notification 217/86 for removal of inputs between factories:The case involved the respondent manufacturing polyester chips at one factory and transferring them to another factory for further processing. The respondent utilized Modvat credit to pay duty on the final product manufactured at the second factory. The Asstt. Collector disallowed the credit, citing Rule 57C, as the final product at the first factory was cleared at nil rate of duty under Notification 217/86. However, the Collector (Appeals) referred to a Tribunal decision stating that when goods are cleared under a notification for another factory and Modvat credit is utilized as provided, the credit cannot be denied. The Tribunal reasoned that the notification extended Modvat credit to captively consumed goods, intending to avoid duty payment at intermediate stages.Issue 2: Interpretation of Rule 57C of the Central Excise Rules in the context of Modvat scheme:The Tribunal referred the question of law to the High Court regarding the denial of Modvat credit under Rule 57C. The Tribunal's order highlighted an error in stating the final product as polyester film instead of polyester chips. Both parties agreed that the final product was chips, not film. The questions referred to the High Court sought clarification on whether the Tribunal erred in holding that Modvat credit cannot be denied under Rule 57C for removal of inputs between factories under Notification 217/86, which aligns with the Modvat scheme's objectives.Issue 3: Comparison of removals under Notification 217/85 and 217/86 for application of relevant legal principles:The case raised the issue of whether removals under Notification 217/85 could be considered analogous to removals under Notification 217/86 for applying legal principles. The questions referred to the High Court aimed to address the strict construction of Rule 57C in light of the Modvat scheme and the facilitation of duty-free removals between factories under Notification 217/86. The Tribunal's decision in Kirloskar Oil Engines was cited for potential application to the current scenario, emphasizing the need for clarity on the legal interpretation of the provisions.In conclusion, the judgment delves into the intricacies of Modvat credit utilization, the interpretation of Rule 57C, and the comparison of different notifications for duty-free removals between factories. The case underscores the importance of aligning legal provisions with the overarching objectives of the Modvat scheme while ensuring clarity and consistency in applying relevant laws to specific factual scenarios.