Customs, Excise and Gold Tribunal - Tamil Nadu
Detergents India Ltd. vs Collector Of Central Excise on 4 December, 1991
Equivalent citations: 1992(61)ELT310(TRI-CHENNAI)
ORDER V.P. Gulati, Member (T)
1. This appeal is against the order of the Additional Collector of Central Excise, Hyderabad. Brief facts of the case are that the appellants had taken MODVAT credit after filing the necessary declaration in respect of Oleum, which was used in the manufacture of the declared specified finished product viz. OSAA detergent cakes falling under Chapter 3402.90. According to the authorities in the process of manufacture 49% of the Oleum which was put in the manufacturing stream, came to be used up in the process of manufacture and the remaining portion emerged as spent acid. This spent acid was removed by the appellants without payment of any duty. The learned lower authority has restricted the eligibility of the MODVAT credit only to the extent of 49% out of the total quantity of Oleum put in the manufacturing stream and in respect of which MODVAT credit was taken in limiting it to the extent it actually got used up in the manufacturing process. The appellants have been charged with not having entered the spent acid in the RG. 1 Register, Modvat Register and RG. 23A, Part I and Part II registers and having failed to debit the duty credit wrongly taken by them and contravention of Rules 57F, 9(1), 57- I read with Rule 9(2) and Section 11A of the Central Excises & Salt Act, 1944 was indicated in the show cause notice. The learned lower authority has held that the appellants had not declared to the Department that only 49% of the Oleum received as input was actually consumed in the process of manufacture of the finished product and for that reason had demanded duty amount of Rs. 2,71,024.77 being the excess MODVAT credit taken wrongly by the appellants during the period 1-3-1986 to 16-5-1988 under Rule 57-I read with Rule 9(2) of the Central Excise Rules, 1944.
2. The learned Consultant for the appellants pleaded that MODVAT credit in respect of the Oleum received was correctly taken under Rule 57A after filing the declaration under Rule 57G. He pleaded that the Oleum received as input was put in the manufacturing stream as such after the process which resulted in the production of the finished product. The product known as spent acid also came to be produced. He pleaded that this spent acid was declared in the classification list filed by the appellants at Sl. No. 5 in the classification list under the heading "Particulars of other goods produced or manufactured and intended to be removed by the assessee". We observe the following is set out under this heading :
No. Full description of goods showing Remarks
the detailed specification
brand/model
(1) (2) (3)
01 Spent Acid - H2So4 Duty paid Sulphuric Acid declared as
non-excisable by the Asstt. Collector,
CE, Anan-tapur. I.D.O. on clarification
of the chemical examiner.
He pleaded that the learned lower authority has demanded duty in terms of Rule 57-I read with Rule 9(2) and Section 11 A. He has pleaded that the point at issue is regarding the wrong availment of the MODVAT credit and the question of invoking Rule 9(1), therefore, does not arise and that in any case the appellants had declared to the authorities that spent acid, which was produced in the factory, was as a result of the manufacturing process for the production of the finished product. He further pleaded that in the context of the facts of this case the question of violation of Rule 57F also does not arise as this Rule pertains to utilisation of the MODVAT credit. His plea is that in terms of the MODVAT Rules the credit initially taken by the appellants was correct as all the requirements for taking the MODVAT credit had been complied with and the credit has also been utilised for payment of duty on the specified finished goods. He pleaded that it is not the case of the Department that the appellants had wrongly cleared the spent acid without payment of duty, as the authorities themselves had allowed the clearance of the same without payment of duty by virtue of the approval of the classification list. He pleaded that if all the Oleum brought in as input had been taken in the manufacturing stream, to that extent under the Rules the MODVAT credit has to be taken. The fact that a part of the Oleum was contained in the spent acid would not disentitle the appellants from availing of the MODVAT credit.
3. The learned S.D.R. for the Department pleaded that MODVAT credit could be only limited to the extent it was utilised in the manufacturing process and that portion of the Oleum which was contained in the spent acid not having been used in the manufacturing process could not be taken to be eligible for the MODVAT credit under the Central Excise Rules for the purpose of taking the MODVAT credit. He, however, could not show us from the reading of the Rules as to how the Rules could be read in the manner he has pleaded.
4. We observe that the short point that falls for our consideration is whether the appellants have correctly taken the MODVAT credit and utilised the same for the purpose as envisaged in the MODVAT Scheme under the Central Excise Rules. We observe that under Rule 57A for the purpose of eligibility of the MODVAT credit the inputs and the finished product should be specified in the notification issued under the said Rule. It is the admitted position that both the inputs and the finished product are notified under the notification issued under Rule 57A. The operative portion of this notification issued under this Rule reads as under :
"... the Central Government hereby specifies the final products described in column (3) of the Table hereto annexed and in respect of which -
(i) the duty of excise under the Central Excises and Salt Act, 1944 (1 of 1944),
(ii) the special duty of excise under the Finance Act, 1984 (21 of 1984), and the Finance Act, 1985 (32 of 1985), and
(iii) the additional duty under Section 3 of the Customs Tariff Act, 1975 (51 of 1975), (hereinafter referred to as "specified duty") paid on inputs, described in the corresponding entry in column (2) of the said Table, shall be allowed as credit when used in or in relation to the manufacture of the said final products and the credit of duty so allowed shall be utilised for payment of duty leviable on the said final products, or as the case may be, on such inputs, if such inputs have been permitted to be cleared under Rule 57F of the said Rules."
Under the same notification in regard to the utilisation of the credit in proviso (2) the following is set out :
"(2) the credit of specified duty allowed in respect of inputs may be utilised towards payment of duty of excise leviable under the Central Excises and Salt Act, 1944 (1 of 1944) on the final products or, as the case may be, on the inputs, if such inputs have been permitted to be cleared under Rule 57F of the said Rules :"
The appellants plead that in terms of the notification and in conformity with the Rules they correctly took the MODVAT credit. The charge against the appellants is that they did not declare to the Department that only 49% of the inputs viz. Oleum for which they availed of the MODVAT credit had been consumed in the process of manufacture of the finished product. We observe that there is nothing in the Rules to suggest that MOD-VAT credit could be taken only for that portion of the inputs which got consumed in the manufacturing process. The learned lower authority has not cited any rule from which this assertion could be read. The learned lower authority has also held that the appellants had not declared to the Department the percentage of the Oleum that was consumed in the finished product. We observe that there is no provision requiring the appellants to declare the actual consumption of the material in the finished product. What is envisaged is that the inputs and the finished product should be specified in the notification issued under Rule 57A and there should be a declaration filed in regard to the same under Rule 57G and subject to the other provisions of the Rules that the finished product should not be exempted, the benefit of MODVAT credit on the inputs can be taken straightaway. Once the MODVAT credit is held to have been taken correctly the next question is regarding the utilisation of the same. Under Rule 57F the inputs may be used in or in relation to the manufacture of final product and there is no dispute that the input has been used in or in relation to the manufacture of the final product. Even in a contingency where the inputs are not used and are cleared from the factory for home consumption in that event these inputs are required under the said Rule to be cleared on payment of duty of excise or for export under bond treating these inputs as if these are the manufactures of the said factory. It is significant to note that once the goods have been brought in under the MODVAT Scheme as input, their status is totally changed and these goods lose the status of goods cleared for home consumption but are treated, once they come inside the factory, as if these are the manufactures of the said factory where the input credit was taken for the purpose of their taking out from the factory for home consumption. The Rules do not envisage the reversal of the MODVAT credit even in such a contingency. The appellants' case is on a superior footing inasmuch as the input as has been taken into the manufacturing stream. For the purpose of MOD VAT Rules, it makes no difference if the whole of the material put in the manufacturing stream has not got consumed and that in the nature of the manufacturing process part of it has emerged as a product which is described as spent acid. It is not the case of the Department that spent acid is Oleum which was the input taken. It may be something which may be akin to Oleum. Even if it had emerged only as Oleum, in terms of Rule 57F in case it was cleared outside the factory, all that had be done was that the same had to suffer duty as if it was the produce of the appellants' factory. But there would be no question of reversing the MOD VAT credit. Spent acid, as stated by the appellants, has been cleared from the factory and has been allowed clearance without payment of duty. If it is not Oleum, then the product would either be a by-product or waste. For the purpose of treatment of this contingency a specific provision has been made under the Scheme of MOD-VAT under Rule 57F(4) under which as to how the waste arising from the processing of inputs, in respect of which credit has been taken, has to be treated is given. The same can be cleared either on payment of duty treating it as the manufacture of the appellant factory or can be destroyed or can be removed without payment of duty, if so notified by the Government of India under Rule 57F(4)(b). We observe that the authorities had not applied their mind nor have framed any issues in regard to the clearance of the spent acid but have confined themselves to the issue of whether the MOD VAT credit has been correctly taken. As held earlier, the MODVAT credit as envisaged under the Rules has been correctly taken. We like to observe that there is no one-to-one correlation prescribed for correlating the inputs and outputs. The credit taken in respect of the inputs received can be taken to form a credit pool from which the appellants can go on drawing for the purpose of paying duty on the declared specified finished product. The authorities have allowed the clearance of spent acid free of duty without applying their mind as to whether under the scheme of MODVAT under the Rules this could be allowed. The issue posed before us is not in the context of the free clearance of the spent acid but in the context of only that portion of the input not consumed in the manufacturing process. As mentioned earlier, in case the portion of the input which came out unutilised in the same form, the Rules clearly provide for payment of duty on the same under Rule 57F in case the same was being cleared from the factory or for being treated as waste under Rule 57F(4). For the purpose of the appeal before us we hold that the order demanding the amount from the appellants is not maintainable in law. In the result the impugned order is set aside and the appeal allowed.