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M/S Rajasthan Spinning And ... vs Collector Of Central Excise ... on 9 May, 1995
The Central Excise Tariff Act, 1985

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Customs, Excise and Gold Tribunal - Tamil Nadu
Thuran Spinning Mills vs Cce on 1 January, 2004
Equivalent citations: 2004 (93) ECC 480
Bench: S Peeran

JUDGMENT S.L. Peeran, Member (J)

1. This appeal arises from Order-in-Appeal No. 84/2003, dated 24.3.2003. Commissioner (Appeals) has confirmed the Order-in-Original No. 21/99, dated 23.2.99, wherein, the Modvat Credit eligibility on the preparatory machines used in the spinning process has been rejected. The appellants are engaged in the manufacturing activity of Cotton Yarn falling under Chapter 52.03 of Central Excise Tariff Act, 1985 and in the course of manufacture, intermediate products viz., Cotton Carded or Combed Cotton classifiable under 52.02 of CETA arises. These are called preparatory stages for manufacturing cotton yarn. The appellants had claimed Modvat Credit for Rs. 1,55,800 as duty paid on the draw frame which is directly used in the manufacturing of intermediate products, namely, sliver. They manufacture Cotton Polyester Blended Yarn and Cotton Acrylic Blended Yarn. The Commissioner ordered for recovery of the amount utilized by them as Modvat Credit on the ground that these preparatory products falling under Chapter 52.05 had not been specified in the Annexure to Rule 57Q of Central Excise Rules. The Commissioner has noted that the machinery in question in necessary and essentially required in the manufacture of certain intermediate products, which are captively consumed in the manufacture of the Cotton Yarn. However, he held that such essentiality has no relevance so long as there is specific exclusion of the goods for the purpose of availment of credit under Rule 57 of Central Excise Rules.

2. Ld. Consultant Shri Bethanasamy submits that the issue is no longer 'res integra' and the matter has been decided by the Delhi Bench and the Southern Bench. The Delhi Bench in the case of Rajasthan Spinning & Weaving Mills Ltd. v. Commissioner of Central Excise, Jaipur, 2002 (140) ELT 214 (Tri.-Del.) held that the Modvat Credit in the circumstances of the case is not deniable as there is no specific exclusion from utilizing the same as capital goods, which are used for manufacturing intermediate products, which are in turn used in the manufacture of final products. It is noted therein that Sub-rule (2) of Rule 57 have specifically provided Modvat Credit be taken on capital goods used in the manufacture of intermediate products. Further, reference is made to the batch appeals decided by this Bench in the case of CCE, Thiruchirapalli & Coimbatore v. Sudarshanam Spinning Mills Ltd., and Ors. by Final Order No. 919-927/2003, dated 4.11.2003. This order specifically applies to the intermediate products, which are manufactured by using Cotton Yarn. He submits that the issue being covered by both the orders, the appeal is required to be allowed.

3. Ld. JDR Shri Mani reiterates the submissions as taken by the Revenue. He left the matter to the Bench to decide the case in terms of the citations produced.

4. On a careful consideration, I notice that the issue is no longer 'res integra' and the matter has been decided by this Bench in the case of CCE, Thiruchirapalli & Coimbatore v. Sudarshanam Spinning Mills Ltd. and Ors. The findings recorded in Para 8-9 are reproduced below:

"We have carefully considered the submissions made by both the sides. The only issue that arises for our determination in all these appeals is whether Modvat Credit of duty paid on the capital goods/input, which are used for manufacture of the final product viz., cotton yarn and during the course of which intermediate product viz., Combed/Carded Cotton, also know as Sliver, emerges, is admissible or not.

Examining this question, we observe that Rule 57R (2) envisages that credit of specified duty allowed in respect of any capital goods shall not be denied or varied on the ground that any intermediate products have come into existence during the course of manufacture of the final product and that such intermediate products are for the time being exempt from the whole of duty of excise leviable thereon or chargeable to 'nil' rate of duty, provided that such intermediate products are specified as final products in Annexure to Rule 57Q. The objection of the Revenue is that Carded/Combed Cotton/Sliver are classified under heading 52.02 with effect from 21.10.94 vide Notification No. 60/94 and since the capital goods were received in the factory prior to 21.10.94, the assessee is not entitled to the benefit. We find that in similar circumstances, the Larger Bench in the case of Ballarpur Industries Ltd., (Supra) has held that the fact that Clause (d) covering 'inputs used as fuel for generation of electricity' under explanation to Rule 57A was introduced with effect from 16.3.1995 cannot automatically lead to the conclusion that prior to that date input used for generation of electricity will not be entitled to Modvat Credit. Rule 57R (2) make it clear that intermediate products have come into existence cannot be a reason to vary or deny benefit of Modvat credit on the capital goods, provided the final product is dutiable. In the instant case, admittedly the final products viz., Cotton Yarn is chargeable to duty. In the back ground of the fact that intermediate products did emerge and emergence of such intermediate product cannot vary or deny the benefit in respect of the capital goods, as provided under Rule 57R(2), just because such intermediate products of credit in respect of such intermediate products have been included on a later date cannot lead to a conclusion that prior to the date of inclusion, the benefit of credit cannot be given. So far as the marketability of the intermediate product in question is concerned, it is now well settled that the goods in question are not marketable. Further, the Central Board of Excise & Customs have also issued clarification vide Circular No. 665/56/2002-CX, dated 25.9.2003 to the effect Modvat Credit cannot be denied on capital goods, used in intermediate products exempt from duty under the new set of rules.

Paras 2 & 3 of the said circular are extracted hereunder:

'2. The matter has been examined by the Board, it is observed that although there is no provision in the existing Cenvat Credit Rules, 2002 corresponding to erstwhile Rule 57R(2), the new rules have no provisions barring the credit on capital goods used in the manufacture of exempt intermediate product. Simultaneously, the use of these capital goods in the overall manufacturing process of finished dutiable goods is not in dispute.

3. It is, therefore, clarified that Cenvat Credit should not be denied on the capital goods used in manufacturing of intermediate product exempt from payment of duty, which are used captively in the manufacture of finished goods chargeable to duty.' In view of our above discussion, we are of the considered opinion that Modvat Credit of duty paid on the capital goods/inputs used by the assessees cannot be denied. We, therefore, uphold the impugned orders in Appeal No. 232 & 24/99 (MDU), dated 5.1.1999 and No. 106/2002 (CBE) (GVN), dated 30.4.2002 and dismiss the Revenue appeals and set aside the rest of the orders in Appeal."

5. Following respectfully, the ratio of the above-noted orders, the impugned order is set aside and the appeal is allowed with consequential relief, if any.