ORDER
V.P. Gulati, Member (T)
1. This appeal is filed by the Department against the order of the Collector of Central Excise (Appeals), Madras dated 31-10-1990. The demand has been made from the appellants in respect of stock of rotors and stampings lying with the appellants on the day they opted for exemption notification in respect of the finished product viz. Pumps and in respect of which they had earlier taken Modvat credit. The original authority’s findings in this regard is as under :
“The essence of the Modvat scheme is to prevent cascading effect of Tax on the final product. It is, therefore obvious that where the final product is exempted there can be no cascading effect and accordingly it is redundent to allow credit on inputs which are used in the exempted goods. Once it is known that the final product is exempted the credit already allowed on the inputs which are likely to be issued in the exempted goods has to be naturally expunged. This is what the show cause notice proposed to do.
As the time of the company ceasing to avail Modvat credit and clearing the final products namely water handling pumps claiming exemption, there was a stock of 2,580 nos. of Diecast Rotors and 15,712 Kgs. of stampings on which the company availed Modvat credit. On 24-10-1988 the company cleared 537 nos. of Diecast Rotors on payment of duty. Deducting this the company had 2,043 nos. of Diecast Rotors and 15,712 Kgs. of Stamping which the company utilised in the manufacture of water handling pumps cleared at the NIL rate of duty. Therefore the company has to pay the credit of excise duty availed by them on the above stock of inputs namely 2,043 Diecast Rotors and 15,712 Kgs. of stampings. The company may adjust the balance of credit available in its RG 23-A Part II and pay the balance in cash.”
The learned Collector (Appeals) on the appeal filed by the respondent has held as under :
“It is not disputed in this case that prior to availing the exemption with effect from 1-5-1986 under Notification No. 142/88-C.E., dated 18-4-1988 the appellants had taken the Modvat credit on the inputs declared by them and utilised the same in accordance with the provisions of Modvat Rules. The lower authority in her order has nowhere established the violation of any provisions of the rule which would authorise her to disallow the credit and direct the appellants to pay such amounts. There is no validity in law for the contention of the lower authority that once it is known that the final product is exempted, the credit already allowed on the inputs which are likely to be issued on the exempted goods has to be naturally expunged. In this case, on the date of availing the exemption on the end products, i.e., 1-5-1988, the Modvat credit had already been taken and utilised. Therefore, the stock lying with the asses-see, even if it ceased to be ‘inputs’ from that date, would be of no consequence let alone warranting demand of duty on such goods. At the most, the excise authority can ensure that the credit lying in RG 23A Part II should lapse and should not be allowed to be used for further clearances which the lower authority has already done. The reliance placed by the appellants on the decision of Honourable Tribunal in the case of Wipro Information Technology reported in 1988 (33) E.L.T. 172 is directly on the point and the ratio of this decision is squarely applicable to the present case.”
The revenue has urged the following grounds in their Appeal Memorandum :
“Rule 57C of the Central Excise Rules reads as follows: Rule 57C credit of duty not be allowed if final products are exempt. No credit of specified duty paid on the inputs used in the manufacture of a final product shall be allowed if the final product is exempt from the whole of the duty of excise leviable thereon or is chargeable to nil rate of duty.
By virtue of the above rule credit of duty can be taken only on inputs which are used in the manufacture of finished excisable goods. If the final product is exempted from excise duty or is chargeable to nil rate of duty the aforesaid benefit is not available. The above said rule is clear on this aspect. Therefore, the credit of duty taken on inputs which are in stock on the date of availing exemption on the finished goods would be required to be reversed since such inputs are going to be used in the final products which would be exempted.”
2. Shri Gregory, the Learned SDR adopted the reasoning in the grounds of appeal in support of his plea for allowing the appeal of the Revenue.
3. The learned Advocate for the respondents pleaded that on 1-5-1988 when the respondent opted for the exemption notification in respect of the pumps manufactured by them and for which they had brought in inputs and taken Modvat credit for the same, parts of the inputs were lying in stock and there was also some Modvat credit outstanding in RG 23A Part-II. He has pleaded that so far as the Modvat credit which was outstanding is concerned the same can be taken to have lapsed inasmuch as the respondent had opted for the exemption notification and they were no longer working under the Modvat scheme. He, however, pleaded that so far as the recovery of the Modvat credit in respect of the inputs which were lying in stock are concerned the same is not warranted in view of the fact that at the time when the respondent opted for Modvat credit scheme they were eligible to take Modvat credit in respect of the inputs in question and the same was correctly taken and they utilised the Modvat credit so taken for payment of duty towards the finished product as envisaged under Rule 57F and the same was correctly utilised. The question of reversal of any Modvat credit or recovery of the same does not arise. He has therefore, pleaded for upholding the order of the learned appellate authority.
4. We observe that in a number of similar cases we have held that once it can be shown that Modvat credit was correctly taken at the time when the appellants were working under the Modvat scheme and the same was also correctly utilised for paying duty towards the notified finished products in respect of which necessary declaration had been filed, the question of recovery of the utilised Modvat credit does not arise. We have held that there is no one to one co-relation of input and output and the moment Modvat credit is taken the same forms part of a resource pool from which the appellant can draw for paying duty towards notified finished products.
5. The latest in the line of decisions is that of the case of the Collector of Central Excise, Madras v. Chennai Bottling Co. Ltd., bearing order No. 785/1993, dated 18-11-1993. In this decision we have referred to our earlier decision in the case of Shri Sarvaraya Sugar (Bottling Unit) Ltd., reported in 1992 (59) E.L.T. 125. In para 6 of this order we have held as under :
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Further elaborating on the status of the goods which are lying in stock when the appellants opted for the Modvat credit, we have referred to Rule 57F(2) and have held that duty could be demanded in respect of the inputs lying in stock treating the same as if these are the manufacture of the said factory in terms of Rule 57F(2). Our finding in this regard is as under :
“We observe that so far as this sub-rule is concerned inputs in respect of which Modvat credit has been taken have been relieved of the duty burden and the same are deemed to be the manufacture of the respondents and if they are cleared from the factory either for home consumption or for export, duty will have to be charged in respect of the same treating them as the manufacture of the Company and this duty could be even more than the Modvat credit but it cannot be less than the Modvat credit taken. The fact that the aerated water was denotified under Rule 57A for the purpose of Modvat credit under Notification 203/87 does not in any way change the status of the inputs which are lying in stock. These by fiction created under the rule have to be treated as the manufacture of the respondent’s factory and therefore when these are cleared for home consumption, from the factory, the same have to be charged to duty as if the same are the manufacture of the said respondents’ manufacturing unit. Under Rule 49 consumption of the goods in the factory has to be deemed to be as if these goods have been issued out or removed from the factory place or premises for home consumption. In our view, provisions of Rule 57F(2) of the Central Excise Rules, 1944 will continue to operate in respect of the inputs on which Modvat credit has been taken. The only course open to the revenue is to demand duty in respect of the goods when these are taken and utilised in the said factory. What we are saying is that so far as the Modvat credit is concerned, the same has been utilised and taken correctly and therefore, there is no question of the same being held as not having been utilised or taken correctly. The revenue should in our view demand duty on these inputs which are lying in stock on the date these were taken in use.”
We, therefore, dismiss the appeal with the above observations.