TaxTMI 
TaxTMI 
2006 (12) TMI 8
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....y sold after payment of excise duty. About 10% of the castings were also captively consumed in the manufacture of power driven pumps.  3.The captively consumed castings were exempt from duty under Notification Nos. 8/96 and 4/97. So were the power driven pumps (under Notification No. 16/96) or they were assessable at 'Nil' rate of duty.  4.While removing the castings for captive consumption, initially, the appellant worked out 8% of the value of PD pumps and reversed (debited) that amount from their outstanding Modvat credit. Subsequently, with the permission of the departmental authorities, amount of deduction was revised (reduced) to 8% of the value of the castings. The initially reversed credit of over Rs. 12 lakhs got ....
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.....During the hearing, the ld. Counsel for the appellant has pointed out that, in addition to the two judgments noted by the Southern Bench, in a third case of Merind Ltd. v. CCE, Mumbai - 2004 (173) E.L.T. 422 also the Tribunal took the same view and those decisions reflected a correct understanding of the legal provisions.  9.The submission of the ld. SDR is that in a catena of judgments, the Hon'ble Supreme Court as well as Tribunal have noticed the distinction between intermediate products and final products and have held that the emergence of an exempted intermediate product during the process of manufacture, (on account of exemption under Notification No. 217/86 etc.) did not make a difference to the question of what is the fin....
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....e inputs only in the production of castings. The Revenue has no case that castings are not a final product. The appellant had declared both castings and PD pump as two different final products. There cannot also be a case that castings are not final products, inasmuch as such a view would lead to non-levy of duty on castings sold by the appellant.  12.During the relevant period, there was no definition of 'final products' under Modvat rules. The scheme was that, under a Notification No. (5/94 issued under Rule 57A), items figuring under the various excise tariff headings were mentioned both as inputs and final products. Under the later CENVAT Rules, 'final products' remains defined as "excisable goods manufactured or produced from ....
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....As against this, the duty demand raised by treating the PD pumps as the final product, works out to over Rs. 32 lakhs. Thus in effect, the levy is falling on the exempted PD pumps.  14.The above data also clearly brings out that what was proposed to be done under the show cause notice is not to "adjustment the Modvat credit taken on inputs" going into the manufacture of exempted goods. The absence of proportion between the credit (about Rs. 2.3 lakhs) taken on the inputs used in the exempted castings and the amount (Rs. 32 lakhs) sought to be recovered alone is sufficient to bring out that what is happening is not the adjustment of a debt owed. In the present demand, there is no relationship between the credit taken and the amounts....