SRF LTD. Vs. CCE

JUDGEMENT

(1.) APPELLANTS are engaged in the manufacture of a variety of industrial textile fabrics falling under Chapter 59 of the CETA Schedule. They are availing Modvat/Cenvat credit on inputs and capital goods. All their final products, barring a few, are manufactured from an intermediate product i.e. grey fabric (unprocessed fabric). This grey fabric falling under heading 54.08 is captively consumed in the manufacture of final products. Appellants, in 1994, took Modvat credit on certain capital goods which were used, during the said period, for the manufacture of grey fabrics which, in turn, were captively consumed in the manufacture of final products. Grey fabrics were exempt from payment of duty during the said period while the final products were dutiable. As the intermediate product (grey fabric) was not specified as final product under Rule 57Q, the department denied the benefit of Rule 57R(2) to the assessee in respect of the intermediate product, holding that availment of credit on such capital goods was barred by the proviso to Rule 57R(2) and, on this basis, a show cause notice was issued to the assessee under Rule 57U for recovery of the amount taken as Modvat credit on the aforesaid capital goods, as also for imposing penalty. The original authority confirmed the demand amounting to Rs. 6,01,897 against the assessee and imposed on them a penalty of Rs. 10,000. The appeal filed by the assessee against the decision of the original authority did not succeed before the Commissioner (Appeals). Hence, this appeal.

(2.) HEARD both sides. Learned Counsel for the appellants submit that the provisions of Rule 57R(2) pertaining to Modvat credit on capital goods used for the manufacture of exempted intermediate products were analogous to those of Rule 57D(2) pertaining to Modvat Credit on inputs used in the manufacture of such intermediate goods and, therefore, the ratio of the Tribunal's Larger Bench decision in the case of Ballarpur Industries v. CCE, Belgaum, 2000 (116) ELT 312 (Tri) is squarely applicable to the present case involving interpretation of Rule 57R(2). It is pointed out that, in the case of Ballarpur Industries (supra), the Larger Bench considered Rule 57D(2) as a benevolent provision of law and, accordingly, Modvat Credit was allowed to the assessee on inputs used in the manufacture of exempted intermediate product, notwithstanding the fact that the intermediate product was not specified as input or final product by Notification issued under Rule 57A, during the relevant period. In other words, learned Counsel submits, the requirement of intermediate product having to be specified as input and final product in terms of proviso (b) to Rule 57D(2) was not enforced against the assessee in view of the beneficial nature of the rule. Learned Counsel claims support from the Larger Bench decision to his contention that the fact that the intermediate product (grey fabric) in the instant case was not specified as final product under Rule 57Q in 1994 should not be pressed into service to defeat the appellants' claim for the substantive benefit of Modvat Credit on the capital goods used for the manufacture of the intermediate product. Learned Counsel has also relied upon the decision of this Bench in the case of CCE, Tiruchirapalli v. Sudarshanam Spinning Mills, , wherein Modvat Credit was allowed to the respondents on certain capital goods used for the manufacture of carded /combed cotton (intermediate product) in terms of Rule 57R(2) despite the fact that the said intermediate product was not specified as final product under Rule 57Q during the material period.

(3.) AFTER carefully considering the submissions, I find that, under Rule 57R(2), credit of duty on capital goods used for the manufacture of intermediate product was not to be denied on the ground that such intermediate product was, for the time being, exempt from payment of duty or chargeable to 'Nil' rate of duty. Proviso to this sub -rule, however, required that the intermediate product be specified as final product under Rule 57Q for the benefit of the sub rule. Admittedly, grey fabric (intermediate product) was not specified as final product under Rule 57Q during the period of dispute. Hence, Revenue invoked the proviso to Rule 57R(2) for denying the benefit of Modvat Credit on the capital goods to the assessee. According to the assessee, Rule 57R(2) was a beneficial provision made to ensure that the substantive right of a manufacturer of final product to avail Modvat Credit on his capital goods was not defeated on the ground that any intermediate product manufactured by using such capital goods was, for the time being, chargeable to 'Nil' rate of duty or exempt from payment of duty. In this connection, learned Counsel has relied on the Larger Bench decision in the case of Ballarpur Industries (supra). In that case, the question was whether the assessee was eligible for Modvat credit on fuel oil (input) used in the manufacture of electricity, which was captively consumed in the manufacture of final product. Electricity was not specified as input or final product in any Notification under Rule 57A as required under proviso (b) to Rule 57D(2). The Larger Bench held that the absence of such notification would not disentitle the assessee to Modvat credit on fuel oil used in the manufacture of electricity. In other words, virtually, the condition laid down under the proviso to Rule 57D(2) was treated as not mandatory. As rightly pointed out by the learned Counsel, Rule 57R (2) which is relevant to the present case is analogous to Rule 57D(2) considered by the Larger Bench. Proviso to Rule 57R(2) invoked by the Revenue against the appellants is analogous to clause (b) of the proviso to Rule 57D(2) as the rules stood during the material period. Therefore, the reasoning adopted by the Larger Bench is applicable to the fact of the present case. Accordingly, it has to be held that it was not open to the Revenue to deny the benefit of Rule 57R(2) to the assessee on the ground that the intermediate product was not specified as final product under Rule 57Q during the material period inasmuch as the requirement of specification of intermediate product as final product under the proviso to Rule 57R(2) was not mandatory. The appellants can also claim support from the Tribunal's decision in the case of Sudarshanam Spinning Mills Ltd. (supra), wherein capital goods credit was allowed to the assessee by the Tribunal after rejecting the Revenue's contention that, as the intermediate product carded/combed cotton) which was manufactured by using the capital goods was not specified as final product under Rule 57Q, Modvat Credit on capital goods was not available to the assessee.