COMMISSIONER OF CENTRAL EXCISE Vs. HINDUSTAN LEVER LTD.

JUDGEMENT

(1.) This appeal is filed by the Revenue against the Order -in -Appeal No. 117/2002 (H -III) CE dated 31.10.2002, passed by the Commissioner of Central Excise (Appeals), Hyderabad.

(2.) Shri B.R. Jagdish, Ld. JDR for Revenue pleaded that the Respondents are manufacture of packaged tea in various packings falling under sub -heading No. 0902.00 of the Central Excise Tariff Act, 1985. They were availing Modvat credit on inputs/packing material used in the manufacture of their finished product, namely packaged tea. With effect from 18.7.98, packaged tea packed in packagings up to 100 gms was exempted from payment of duty in terms of Notification No. 17/98 dated 18.7.98. On this date, the appellants had a stock balance of 1,08,296 kgs. of packaged tea in packings up to 100 gms. and also of various inputs on which the appellants had already taken Modvat credit. After 18.7.98, the Respondents cleared the packaged tea up to 100 gms. of packing at nil rate of duty as per the exemption Notification. However, that did not reverse the credit taken on the inputs used in the manufacture of such packaged tea. Show cause notice was issued to them for recovery of Rs. 2,83,793 under Rule 57I of Central Excise Rules, 1944 being ineligible credit taken on inputs used in the manufacture of exempted final products. The show cause notice was decided by the Assistant Commissioner who confirmed the demand and also imposed a penalty of Rs. 25,000 on the Respondents. Appeal filed by the Respondents before the Commissioner (Appeals) against the above -said order of the Assistant Commissioner was allowed by the Commissioner (Appeals). The Ld. JDR pleaded that the revenue is filing the appeal on the ground that with effect from 1.3.97, Rule 57C was re -drafted and according to that no credit of specified duty shall be allowed on such quantity of inputs, which is used in the manufacture of the final products if final products are exempted. He therefore pleaded that the respondents wrongly taken the credit and the Assistant Commissioner has correctly demanded the same under Rule 57 -I. Therefore, the order of the Commissioner (Appeals) is not correct and legal and the same may be set aside.

(3.) Shri B.V. Kumar, Ld. Advocate appearing for the Respondents pleaded that there is no dispute on basic facts. However, the issue involved in the present appeal is whether the Respondents are required to be reversed the Modvat credit taken by them on inputs received by them when final products were liable to duty but were subsequently exempted by issue of a notification. He stated that credit was correctly taken by them on inputs when the final product was dutiable. Later when final product was exempt, they were not required to debit the credit on the ground that final products become exempt. In support of his contention, he relied upon the following decisions of the Tribunal as well as the Apex Court - -