DELCO REMY ELECTRICALS INDIA LTD. Vs. CCE

JUDGEMENT

(1.) THE appellants are manufacturers of alternators and parts thereof [Heading No. 85.11 of the CETA Schedule]. During the periods of dispute, they had taken input duty credit on their finished products [alternators] returned by customers. Those goods were initially cleared on payment of duty by the appellants. The customers, finding the goods defective, returned them on payment of duty. The credit of this duty was taken by the appellants upon receipt of the defective goods from their customers. Both the adjudicating authority and the first appellate authority took the view that input duty credit was not available to the assessee in respect of their finished products rejected by customers inasmuch as such goods could not be treated as 'inputs'. Hence the present appeals.

(2.) HEARD both sides. Ld. Counsel for the appellants challenged the above view taken by the authorities, by submitting that finished goods of a manufacturer, returned by his customer, were held to be modvatable inputs in the case of Biotech Synergy Ltd. v. Commissioner . Ld. Counsel also relied on the Tribunal's Larger Bench decision in the case of Commissioner v. Tin Manufacturing Co. , wherein it was held that defective [duty -paid] metal containers returned to the manufacturer by customer and remade into new metal containers by the former were held to be modvatable inputs under Rule 57A of the Central Excise Rules, 1944.

(3.) AFTER careful consideration of the submissions, I find that there is no dispute of the fact that the defective final products returned by the customers to the appellants' factory were not used in or in relation to the manufacture of any fresh final product. The returned goods were dismantled/disassembled and some parts were removed from the factory on payment of duty and the remaining parts were scrapped and removed from the factory on payment of duty. Under Rule 57A of the Central Excise Rules, 1944, it was a substantive requirement that any input on which Modvat credit was sought to be availed should be used in or in relation to the manufacture of specified final product. The appellants, admittedly, did not fulfil this requirement. Hence the benefit of Modvat credit of the duty paid on the goods returned by the customers was not available to the appellants under Rule 57A of the Central Excise Rules. The case of Biotech Synergy Ltd. (supra) cited by ld. Counsel is clearly distinguishable on facts. In that case, it was not in dispute that the goods returned by the assessee's customers had been used for fresh manufacture of final product in the assessee's factory and therefore it was held that the returned goods were used in the process of manufacture of fresh final product in the assessee's factory. In the case of Tin Manufacturing Company (supra), again, the defective goods [metal containers] returned by the assessee's customer were found to have been remade into new metal containers and accordingly it was held that the defective goods were inputs in the manufacture of the new final product. Hence the Larger Bench decision is also of no avail to the appellants. The orders of the lower authorities are perfectly valid on the substantive issue. However, in respect of the penalties imposed on the assessee. I find that different penalties were imposed for the same offence for different periods, which is not justifiable. The offence found against the assessee is irregular availment of Modvat credit. For such availment of Modvat credit in July 1999, a penalty of Rs. 5,000/ - was imposed on the assessee, while for August 1999 the penalty imposed is only Rs. 2,000/ -. This does not reflect a judicious exercise of discretion. In the facts of the case, the penalty imposed on the assessee in respect of July 1999 is reduced to Rs. 2,000/ -. Excepting this modification, the order passed by the Commissioner (Appeals) is sustained. The appeals are dismissed.