Customs, Excise and Gold Tribunal - Tamil Nadu
S.R.F. Ltd. vs Collector Of Central Excise on 10 February, 1995
Equivalent citations: 1995(79)ELT648(TRI-CHENNAI)
ORDER
S. Kalyanam, Vice President
1. This appeal is directed against the order of the Collector of Central Excise (Appeals), Madras dated 13-12-1990 confirming the order of the Assistant Collector of Central Excise, Madras dated 6-6-1990 holding that the appellants are not entitled to take MODVAT credit on caprolactum used in the manufacture of Nylon Yarn.
2. The appellants are manufacturing Nylon Tyre Cord Fabrics and polyamide chips and nylon filament yarn emerge as intermediate products. Polyamide chips emerging as intermediate product comes within the mischief of Chapter 34 of the Central Excise Tariff and would be eligible for MODVAT and so far as the nylon filament yarn is concerned it emerges as an intermediate product coming within the mischief of Chapter 54 of the Central Excise Tariff and is not eligible for MODVAT since the same is not specified either as an input or an intermediate product under the relevant notification in the Modvat Scheme.
2A. Shri Arvind P. Datar, the learned Counsel for the appellant submitted that the period involved in the appeal is October to November, 1989 and the appellants on 20-12-1991 have paid a duty of Rs. 9,08,617.50 on the balance credit taken by the appellant and a sum of Rs. 5,82,377.46 remains unutilised. The learned Counsel submitted that under the entire MODVAT Scheme if the initial input is notified as an input in terms of Rule 57A and is eligible for MODVAT Credit and on utilisation of the initial input the intermediate product emerges which is duty paid notwithstanding the fact that such intermediate product is not notified as a specified input under Rule 57A, the appellant would be eligible to take MODVAT Credit on the same in terms of Rule 57D, Sub-rule 2 of the Central Excise Rules 1944. It was contended that the appellants is using caprolactum which is eligible for MODVAT credit as an input and at the first stage polyamide chips emerge as an intermediate product which is eligible for MODVAT credit. At the second stage use of caprolactum item and polyamide chips bring absent nylon filament yarn an intermediate product and at the penultimate stage it is used in relation to the final product namely nylon tyre cord fabrics. The learned Counsel contended that the nylon filament yarn is emerging as an intermediate product on which the appellant has paid duty. Therefore, in terms of Rule 57D(2) on a proper appreciation and interpretation of Rule 57D, the appellant would be eligible to take MODVAT Credit on the duties suffered by the nylon filament yarn notwithstanding the fact that the same is not specified as an input under the notification issued under Rule 57A for availing MODVAT credit. The learned Counsel submitted that the reasoning of the authorities below that the chain as it was from the initial stage of the input to the final stage of the manufacture of the end product should remain unbroken for the purpose of one becoming eligible to MODVAT credit is misconceived in law. The learned Counsel further contended that Rules 57A, 57C and 57D would make it clear that if the intermediate product emerging in the course of the manufacture of the final product has suffered duty, the manufacturer concerned would be eligible to take MODVAT credit on the duty suffered on such intermediate product if the same is used in the end product irrespective of the fact whether the same is notified or specified as an input under Rule 57A. The learned Counsel contended that Rule 57D envisages 3 conditions namely:
(i) The emergence of an intermediate product in the course of the manufacture of the final product and the intermediate product being exempted from the whole of the duty of excise leviable thereon and are chargeable to nil rate of duty.
(ii) Use of the intermediate product in the factory of production in the manufacture of final product on which duty of excise is leviable whether in whole or in part.
(iii) The intermediate product specified as input under a notification issued under Rule 57A.
3. In elaborating this aspect of the submissions, the learned Counsel contended that in the present case the initial input caprolactum and the final product are notified for the purpose of MODVAT credit as duty paid input and the final product nylon tyre cord fabrics is also liable to duty and both are covered by the MODVAT Scheme. The emergence of the intermediate product in the factory of the appellant namely nylon filament yarn is duty paid and therefore prima facie Rule 57D(2) will not cover the appellant's case because Rule 57D(2) concerns only with the intermediate products which are exempted or chargeable to nil rate of duty. In the appellant's case the intermediate product namely nylon filament yarn is neither exempted nor chargeable to nil rate of duty and as the appellants are paying applicable rate of duty and clearing the goods for captive consumption, rejection of the appellant's claim for MODVAT credit on the duty paid on the initial input namely caprolactum is not sustainable in law or on facts. The learned Counsel reiterated mat denial of MODVAT credit could be taken only when the intermediate products are exempted and also on those which are not specified under the MODVAT Scheme. Since the nylon filament yarn not specified under the MODVAT Scheme is not exempted, proviso to Rule 57D for denial of MODVAT credit to the appellant is not relevant and in this view the learned Counsel assailing the correctness of the orders of the authorities below contended that the appellant would be eligible to the MODVAT credit. The learned counsel also placed reliance on the ratio of the ruling of the Special Bench in the case of Vam Organic Chemnicals v. Collector of Central Excise reported in 1989 (39) E.L.T. 72 (Tribunal) particularly with reference to paras 7, 8 and 9 and also the ruling of the West Regional Bench in the case of Collector of Central Excise & Customs v. Polychem Ltd. reported in 1994 (74) E.L.T. 928 (Tribunal).
4. Shri J.M. Jeyaseelan, the learned DR submitted that the issue before us is whether the appellant is entitled to take MODVAT Credit on the duty paid on the intermediate product namely nylon filament yarn. The learned DR submitted that in terms of Rule 57D(2) of the Central Excise Rules, 1944, the intermediate product should be notified as an input under Rule 57A and should be exempted and in the present case the intermediate product in question admittedly not being specified as an input under the notification issued under Rule 57A, the same is not eligible for MODVAT credit. The learned DR submitted that the legislature while incorporating Rule 57D Proviso 2 in particular has made a conscious omission about the duty paid intermediate product and such legislative wisdom cannot be questioned.
5. We have carefully considered the submissions made before us. In order to appreciate the plea put forth by the learned Counsel, we would like to refer to Rules 57A, 57C and 57D which read as under:
* * * * * * * In the present case, nylon filament yarn emerged as an intermediate product in the appellants' factory and the same is used in relation to the manufacture of the end product nylon tyre cord fabric. A plain reading of Clause (2) of Rule 57D(2), would make it clear that the intermediate product cannot be denied MODVAT credit if the same is used in the manufacture of final product on the ground that such intermediate products are for the time being exempt from the whole of the duty of excise leviable thereon or chargeable to nil rate of duty. To avail MODVAT credit in favour of the exempted intermediate product emerging in the course of the manufacture of the final product, such intermediate product should be used in relation to the manufacture of the end product subject to the conditions set out under the proviso to Rule 57D(2) whereunder such intermediate products should be used within the factory of production in the manufacture of a final product on which duty of excise is leviable whether in whole or in part and specified as inputs or as final product under a notification issued under Rule 57A. Therefore, if the exempted intermediate product is not specified as inputs under the notification issued under Rule 57A the same cannot be considered for the benefit of MOD VAT credit. The plea of the learned Counsel that de hors Rule 57D(2) and the proviso and also Rule 57A, the intermediate product which has suffered duty would be eligible for MODVAT credit is not acceptable either on fairness of construction of Rules 57A, 57C and 57D under the MODVAT Scheme or on the plain reading of Rule 57A. The ratio of the ruling in the case of Vam Organic Chemicals Ltd. referred to supra is not applicable to the facts of the present case. It would be seen that Rule 57D which was discussed above, the proviso to Rule 57D came into operation under Notification No. 28/88 C.E., dated 6-10-1988 and the Tribunal in the case of Vam Oranic Chemicals Ltd. dealt with a situation when Rule 57D(2) proviso was not in the statute book at all. Apart from that we do not find anything in the ruling in support of the appellant's case for the contention that a duty paid intermediate product even if the same is not notified under Rule 57A would be eligible to avail MODVAT Credit. The Single Member ruling of the Bench in the case of Polychem Ltd. is of no avail in this case because that was a case arising under a Reference Application and the Tribunal rejected the Reference Application on the ground that no question of law arose out of the impugned order concerned. We are not able to see how the rejection of the Reference Application by the Single Member of the Tribunal in Polychem Ltd. case on grounds that no question of law arose mentioning reference would help the appellant in support of the plea canvassed before us particularly with reference to the eligibility of the appellant to take MODVAT credit on the duty suffered by an intermediate product which is not notified.
6. On a harmonious reading of the Rules 57A, 57C and 57D, it would be seen that the MODVAT Scheme applies only to such goods which are notified through Notification 177/86, dated 1-3-1986 issued under Rule 57A. When the rule clearly bars the availment of MODVAT credit in respect of non-specified or non-notified items under Rule 57A, it would be futile to contend that notwithstanding such non-notification of the inputs for the purpose of MODVAT credit under Rule 57A under the relevant notification, the intermediate product emerging in the course of manufacture should be construed to be eligible for MODVAT credit merely because it has suffered duty. It would be seen that there are a number of products which have suffered duty and which are not notified for the purpose of MODVAT scheme. We are here only to interpret the rules governing the MODVAT scheme as they are and it is out of our bounds to question the legislative wisdom. Therefore, on consideration of the evidence on record and having regard to the admitted fact that the intermediate product in question namely Nylon Filament Yarn which is admittedly not a specified or notified input under the relevant notification issued under Rule 57A and also keeping in mind the wording of Rule 57D(2) particularly with reference to the proviso and conditions enumerated thereunder, we hold that the appellant would not be eligible to take MODVAT Credit on the duty suffered by the intermediate product namely Nylon Filament Yarn. In this view of the matter and for the reasons stated above the appeal is dismissed.