MARUTI UDYOG LIMITED Vs. UNION OF INDIA

JUDGEMENT

(1.) M/s. Maruti Udyog Limited (for short `MUL') manufactures motor, vehicles. M/s. Bharat Seats Limited (for short `BSL') a joint venture with MUL, manufactures seats for motor vehicles for exclusive supply to MUL. The seat is one of the inputs of the motor vehicles. The seat assembly consists of three parts. These parts are first manufactured by BSL and sold to MUL and thereafter are reissued by MUL to BSL for manufacture of seats on job-work basis after which BSL supplies the complete seats to MUL who uses it in the manufacture of their motor vehicles.

(2.) Prior to 21st January 1989 parts of seats used to be physically transported by BSL to MUL under a gate pass, MUL availed MODVAT credit on the basis of these passes. Thereafter the parts were physically resupplied to BSL under the procedure for the purpose of sending inputs to job works as per Rule 57F(2) of the Central Excise Rules (for short referred to as `the Rules' hereinafter). It is however, not in dispute that for the period after 21st January 1989 which is the relevant period in these petitions, parts of seats did not physically move from factory of BSL to that of MUL. Therefore, the question of physical movement again from MUL to BSL does not arise. The Central Excise Duty was paid by BSL and credit was taken by MUL of the duty paid as per gate passes. They were issued necessary challans under Rule 57F(2).

(3.) The Central Excise Department initiated proceedings against MUL and BSL for the period after 21st January 1989. The case of the Department against MUL was that there was no physical movement of the parts and MUL is not entitled to claim MODVAT credit. Against BSL, the case of the Department was that the parts of seats manufactured by them were wholly exempt from duty under Serial No. 1 of Notification No. 80/90 and, therefore, BSL could not have paid duty on parts which are exempt under the Notification. The further, case of the Department was that BSL is not entitled to MODVAT credit of excise duty paid on raw material used by it in the manufacture of parts of seats because of the bar for MODVAT credit under Rule 57C. Rule 57C inter alia provides that no credit of duty paid on inputs used in the manufacture of a final product shall be allowed if the product is exempt from whole of duty of excise payable thereon.