Customs, Excise and Gold Tribunal - Delhi
Commissioner Of Central Excise vs Bhushan Steel And Strips on 9 June, 2000
Equivalent citations: 2000(120)ELT431(TRI-DEL)
ORDER A.C.C. Unni, Member (J)
1. The present Reference Application filed by the Department seeks to refer a point of law, which according to the Department, has arisen from the Tribunal's Final Order No. A/1112/98-NB, dated 4-12-1998.
2. We have heard Shri M.M. Dubey, ld. JDR for the applicant Commissioner. None appeared for the Respondents when the matter was called despite notice.
3. The Tribunal had by the impugned Final Order upheld the Order-in-Appeal passed by the Commissioner (Appeals) holding that modvat credit will be available on finished goods returned to the manufacturer of finished goods by the customer by reason of the goods being defective.
STATEMENT OF CASE
4. Ld. JDR has argued that in the instant case the Respondents who were manufacturers of C.R. Coils/sheets and G.P. Coils/sheets received their inputs from various suppliers and they had been taking modvat credit on the duty paid on the inputs. Some of the purchasers of their finished products returned the goods to them as the goods were defective. Respondents thereupon took credit on the defective goods treating them as inputs for manufacture of their finished products. The Department took the stand that such C.R. Coils/sheets and G.P. Coils/sheets being finished products in themselves, they would not be eligible for modvat credit and taking of credit on such items was not in accordance with Rule 57A read with Rule 57G. A credit of Rs. 6,88,548/- taken by the Respondents on the said items was initially disallowed by the Asst. Commissioner. This was reversed by Commissioner (Appeals) and confirmed by the Tribunal, vide impugned order.
5. Ld. JDR has contended that as per provisions of Rule 57A of the Central Excise Rules, 1944, the modvat scheme is applicable to specified finished goods and credit is available only on duty paid on the goods used in or in relation to the manufacture of the final products. In other words, modvat credit is available only on the goods (inputs) which have been used in or in relation to the manufacture of final products. The Tribunal had in the case of I.C.I. v. CCE, Calcutta-11, 1997 (89) E.L.T. 216 (Tribunal) held that the process of conversion of defective paints and rubber chemicals (inputs) into fresh paint and rubber chemicals would not amount to manufacture of new products and modvat credit under Rule 57A was not available on the said inputs. In CCE Bangalore v. Krishna Fabricates (P) Ltd. 1996 (84) E.L.T. 304 (Tribunal), the Tribunal had held that a manufacturer of seat kushy cannot take modvat credit on defective and dismantled seat kushy returned to the manufacturer by the buyer. Likewise, in the case of ASSK Engineers v. CCE 1998 (97) E.L.T. 99 Mumbai CEGAT), the Tribunal had taken the view that where the operation undertaken on the returned goods in the appellant's factory was only removal of defects, which did not amount to manufacture, the Department would be justified in disallowing modvat credit. A two Member Bench of the Tribunal had in Escorts Ltd. v. CCE 1993 (68) E.L.T. 682 held that in the case of rejected or defective goods brought back to the manufacturer's unit for re-conditioning and repairs would not be eligible for modvat credit since no manufacturing activity was involved. Having regard to the decisions in the aforesaid orders of the Tribunal and the view taken in the impugned order, according to the Ld. JDR, a question of law has arisen which may be referred to the Hon'ble High Court of Allahabad under Section 35G of the Central Excise Act, 1944.
6. On consideration of the submissions made on behalf of the applicant Commissioner and the impugned order, we are of the view that certain ambiguity on the correct legal position in the matter does exist. The Tribunal had largely relied upon the case law cited by the assessee, such as the decision in the Alcobex Metals Ltd. 1993 (68) E.L.T. 146 wherein the Tribunal had dealt with the question of defective goods cleared by the customer under Rule 57F(1)(ii) which was re-melted and used as inputs in the manufacture of their final product. Another decision cited and relied upon by the assessee was the case of Udasee Stamping (P) Ltd. 1997 (19) R.L.T. 450 wherein it was held that defective electrical stamping and lamination if returned by the customers, modvat credit will be available on such goods since they can be treated as scrap. Yet another decision that was followed in the Final Order was the case of Frontier Springs (P) Ltd. 1994 (72) E.L.T. 385 in which the question was whether untempered, unpeened spring leaves used as input in the manufacture of spring leaves after subjecting them to tempering and shot peening, will be admissible to modvat credit under Rule 57A. It was clarified by the ld. JDR that in the facts of the instant case, the defective goods received by the Respondents were not to be re-melted but only further processed for removing the defects. There were provisions in the Central Excise Rules such as Rule 173H and 173L which provide for receiving of defective goods by a manufacturer for re-making, reconditioning, repairing etc. Such goods are not eligible for Modvat credit.
7. We find that a certain ambiguity does exist in the matter. In the light of the above discussion, we agree with the Revenue that a question of law has arisen which requires to be referred to the Hon'ble High Court for its considered opinion under Rule (sic.) 35G of the Central Excise Act, 1944.
8. Accordingly, we refer the following question of law to the Hon'ble High Court, Allahabad for its considered opinion under the aforesaid provision of law.
"Whether in view of the specific provisions under Rules, 173H and Rule 173L of the Central Excise Rules, 1944, re-making, refining, re-conditioning, repairing or similar processes on defective goods returned to the manufacturer of the final products can be treated as an input for purpose of Rule 57A of the Central Excise Rules, 1944."
9. The Registry is directed to take steps to refer the above matter in terms of the statement of the case made above.
10. The Reference Application is accepted and disposed of in the above terms.