KONGARAR SPINNERS LTD. Vs. CCE, COIMBATORE

JUDGEMENT

(1.) THIS appeal arises from Order -in -Appeal No. 1/98 dated 26.2.1998 by which the Commissioner (Appeals) has confirmed the Order -in -Original by which the appellants were directed to reverse the modvat credit utilised for the manufacture of final product cotton blended/Polyester yarn. The appellant had paid duty on the inputs namely Polyester staple and in the course of manufacture of the final product an intermediate product namely cotton blended/Polyester sliver form arose which was exempted from duty. By Order -in -Appeal No. 369/96 (CBE) dated 28.5.1996 the Commissioner (Appeals), Trichy had upheld the assessee's contention that they can avail the modvat credit paid on the inputs while clearing the final product although intermediate product was exempted from duty. This order of the Commissioner (Appeals) was not further appealed by the Department before CEGAT. Therefore, the appellant's contention is that the department re -adjudicating the issue by further issuance of show cause notice dated 30.1.1997 asking them to reverse the very amount is not justified in law. They further contend that the issue is no longer res integra and the Larger Bench in the case of Ballarpur Industries Ltd. v. CCE, Belgaum as reported in : 2000 (116) ELT 312 have clearly laid down that modvat credit cannot be denied in case where intermediate product arise when modvat credit is allowed on duty and that the final product is dutiable. It is pointed out that the said ratio was applied in an identical case in the case of CCE v. Mettur Spinning Mills as reported in, 2001 (135) ELT 678 and the Revenue appeal was rejected. Therefore it is prayed by the Ld. Counsel Shri Parthasarathy, Consultant and Shri Srinivasan, Consultant as the issue is no longer res integra the appeal is required to be allowed. Ld. DR Shri A. Jayachandran reiterated the departmental view. We have carefully considered the submissions and perused the records and also both the citations referred to before us. We notice that the Commissioner (Appeals), Trichy by his Order -in -Appeal No. 369/96 dated 28.5.1996 had upheld the assessee's contention with regard to the availing of modvat credit in respect of the final products in their case for the clearances of the impugned period. This order of the Commissioner (Appeals) was not agitated before the Tribunal and therefore we are of the view that the issue has reached its finality and the Department could not re -agitate by issue of fresh show cause notice for the same period directing the appellant to reverse the credit. Be that as it may, the issue is no longer res integra and the appellants are eligible to modvat credit which has been upheld in the case of CCE v. Mettur Spinning Mills (supra) in the light of the Larger Bench judgment rendered in the case of Ballarpur Industries Ltd. v. CCE (supra) as recorded by the Tribunal in para 4 and 5 which is reproduced below:

(2.) MODVAT - Fuel oil used in the manufacture of electricity for captive consumption - Intermediate product - Rule 57D(2) of Central Excise Rules, 1944 - Scope of - Rule 57D(2) does not set out the condition precedent for extending Modvat credit to an assessee - Non -fulfillment of condition of Rule 57D(2) cannot result in disentitlement of an assessee to credit -Condition under Rule 57D(2) is to be fulfilled only if the person wants to claim benefit thereunder. - Rule 57D(2) stipulates that credit of specified duty allowed in respect of any input "shall not be denied or varied" on the ground that an exempted intermediate product has come into existence during the manufacture of a final product: This expression cannot be equated with the expression "credit shall be allowed only on the ground mentioned in the sub -rule". Rule 57A states that credit may be allowed on inputs subject to terms and conditions mentioned in a Notification issued thereunder. Rule 57B sets out that in respect of inputs purchased from small scale units, credit shall be allowed at the rate that was applicable to such inputs. Therefore, Rules 57A and 57B are the rules relating to allowing of credit. On the other hand, Rule 57C says that no credit of duty paid on inputs shall be allowed when the final product is exempt...".

(3.) THUS Rule 57C is a Rule relating to non -allowing of credit. However, Rule 57D(2) does not refer to credit being allowed or not allowed but uses the expression "credit shall not denied or varied". To our minds, Rules 57D(2) does not set out the condition precedent for extending Modvat credit to an assessee. Non -fulfillment of condition of Rule 57D(2) cannot result in disentitlement of an assessee to credit. The condition imposed in Rule 57D(2) is required to be fulfilled only by a person who wants to claim benefit under that Rule and if an assessee can otherwise establish that Modvat credit is available according to the other provisions of the Rules, he cannot be denied credit on the ground of non -fulfillment of the condition of Rule 57D(2). There are many circumstances which are pointers to hold that the fulfillment of Rule 57D(2) is not a condition precedent for availing Modvat credit. Firstly, Rule 57D(2) refers to intermediate products which are exempt from duty or chargeable to nil rate of duty. Therefore, if a dutiable product comes into existence as an intermediate product, this condition is not satisfied. However, it is not the case of the Revenue that since Rule 57D refers only to exempted product or products chargeable to nil rate of duty, credit will be denied if the intermediate product is one on which duty is leviable. Secondly, the first proviso to Rule 57D(2) refers to intermediate product being used within the factory of production in the manufacture of final products on which duty is leviable whether in whole or in part. Therefore, if a product is not used in the factory but is cleared, certainly it cannot be an intermediate product although the first proviso to Rule 57D(2) refers to intermediate product being used within the factory. The above would clearly show that Rule 57D(2) has been enacted only out of abundant caution so as to ensure that Modvat credit is not denied in the circumstances mentioned in the sub -rule. (paras 8 and 9)