COMMISSIONER OF CENTRAL EXCISE Vs. SUNDARAM INDUSTRIES

JUDGEMENT

(1.) The respondents are manufacturers of rubber products falling under Chapter 40 of the CETA Schedule. These rubber products are manufactured from compounded rubber which is manufactured from synthetic rubber, Carbon black and various chemicals. The respondents, during the material period, took Modvat credit on the said inputs viz. Synthetic Rubber, Carbon black and chemicals and utilised the same for payment of duty on the rubber products. A part of the compounded rubber during the said period was consumed for re -rubberisation of old/used rollers sent by other parties for job work. The department treated this job work done by the respondent, as a process of manufacture and considered the re -rubberised rollers as excisable goods exempt from payment of duty. On this premise, for the earlier part of the period of the dispute, the department invoked Rule 57CC of the Central Excise Act, 1944 to demand 8% of the price of the re -rubberised rollers and, for the remaining part of the period of dispute, they invoked similar provisions contained in Rule 57AD of the Central Excise Rules, 1944 or Rule 6 of the Cenvat Credit Rules, 2001, as the case may be, for raising similar demands. On the whole, a demand of Rs. 6,95,629.23 was raised on the party towards which an amount of Rs. 4,16,962 being the credit expunged by the party in respect of the inputs contained in -compounded rubber consumed in job work was appropriated. In the result, an amount of Rs. 2,78,667 was demanded from the respondents in a show cause notice issued to them. That notice also proposed to levy interest and to impose penalty All the proposals were contested. In adjudication of the dispute, the original authority confirmed against the respondents the demand of Rs. 2,78,667 and imposed on them a penalty of equal amount. That authority passed a similar order against the party for another period, October, 2001 to March, 2002. Aggrieved by these orders, the party went in appeal to the Commissioner (Appeals) and the latter allowed the appeals. Hence the present appeals of the Revenue.

(2.) Ld. SDR reiterates the grounds of these appeals. The appellant -Revenue has treated the re -rubberised rollers as an exempted final product for purposes of Rule 57CC/57AD of the Central Excise Rules, 1944 and Rule 6 of the Cenvat Credit Rules, 2001. Referring to the expunction of credit taken on the inputs contained in compounded rubber consumed in re -rubberisation of rollers, the appellant has a case that it was not open to the respondents to do so inasmuch as they had not maintained separate accounts for inputs used in rubber products and those used for job work. The appellant has also stated to the effect that the old formula adopted by the respondents for such expunction of credit and accepted by the department prior to incorporation of the aforesaid Rules in the statute book is not applicable to the material period. The Revenue has also relied on the Supreme Court's decision in the case of CCE, Chennai v. MIL Industries Ltd. [2002 (143) E.L.T. 20 (S.C.)] wherein the question whether re -rubberising and relining of old and used rollers amounted to 'manufacture' under Section 2(f) of the Central Excise Act, 1944 was remanded to the Tribunal.

(3.) Ld. Counsel for the respondents submits that expunging Modvat credit on inputs used in compounded rubber used for re -rubberising old rollers as job work is an old practice of the respondents, acknowledged and accepted by the department. The Counsel has referred to a letter dated 28 -3 -95 of the Central Excise Range Superintendent addressed to the respondent -company. This letter refers to 4% expunction of credit by the party and instructs them to expunge further credit so as to make the total expunction 5%. Ld. Counsel, further, argues that re -rubberisation of old and used rollers does not amount to manufacture as held by the Supreme Court in Lathia Industrial Supplies Co. P. Ltd. v. CCE [1987 (29) E.L.T. 751 (S.C.)] and, therefore, the re -rubberised rollers cleared by the respondents during the material period are not to be treated as an exempted final product for the purpose of Rules 57CC/57AD of Central Excise Rules, 1944 and Rule 6 of Cenvat Credit Rules, 2001. It is argued that the said Rules are inapplicable to the facts of this case and consequently the demand of 8% of the price of re -rubberised rollers is not sustainable. Ld. Counsel has also sought to distinguish the case of MIL Industries Ltd. (supra) relied on by the Revenue, by submitting that, in that case, the Apex Court did not record any finding on the question whether re -rubberisation of old/used rollers amounted to manufacture. He has also pointed out that, in the respondents' own case, this Tribunal has held that re -rubberisation of used rollers does not amount to manufacture.