ORDER
V.P. Gulati, Member (T)
1. This appeal is against the order of the Collector of Central Excise (Appeals), Madras. After hearing both sides we announced the operative portion of the order dismissing the appeal with detailed order to follow. The short point that falls for consideration in the appeal is whether the input duty MODVAT Credit can be allowed to be accumulated by the Unit which is admittedly clearing the final product without payment of duty. The appellants are manufacturing Pumpable Slurry Explosives (PSE) and supply the same to M/s. Kudremukh Iron Ore Co. as 100% Export Oriented Unit (EOU) under CT-3 certificate free of duty. The appellants’ plea is that notwithstanding their supply of the finished product without payment of duty to 100% EOU, they should be allowed to accumulate the MODVAT Credit in respect of the inputs used in the manufacture of final product for utilisation later as and when they start clearing the goods on payment of duty.
2. The representative appearing on behalf of the appellants pleaded that the inputs and the finished products, as it is, are specified under Rule 57A of the Central Excise Rules and the appellants had filed necessary declaration in regard to the same and they should have therefore been allowed to take MODVAT Credit in respect of the inputs notwithstanding the fact that the final product was not suffering any duty on account of their supply to 100% EOU in terms of Notification 123/81. He pleaded that the credit should be allowed to be accumulated till they can utilise the same at a later date when they would be clearing the goods on payment of duty. In this connection he cited the judgment of SRB in the case of Sawottam Ispat Private Ltd. v. Collector of Central Excise, reported in 1989 (41) E.L.T. 181 and he drew our attention to the findings in Para 5 which are set out below :
“On a careful consideration of the submissions made by the learned Consultant and the learned SDR, we find that according to Rule 57F(3), as amended, credit of specified duty allowed in respect of any inputs may be utilised towards payment of excise duty on any of the final products in or in relation to the manufacture of which such inputs are intended to be used in accordance with the declaration filed under Rule 57G. The appellants’ case is that they have in fact utilised the credit earned by them on the input scrap only on the single final product that they manufactured viz. steel ingots and that the provisions of Rule 57F(3) as above do not bar such utilisation when admittedly there is no one-to-one correlation between the input and the output under the MODVAT Scheme. Examining this issue, it is observed that what Rule 57F(3) provides is that the credit of duty allowed in respect of any input can be utilised towards payment of duty on any of the final product in or in relation to the manufacture of which such inputs are used. A plain reading of the rule, when considered in the background of the objective of the MODVAT Scheme, viz. to provide instant credit for the manufacturers and to avoid cascading effect of taxation on input in relation to the final product, it will be clear that this rule in terms will not be a bar for utilisation of amount of credit which may accumulate because of a situation where the duty on the final product is less than the duty on the inputs for payment of duty on the same final product. This conclusion is also supported by the admitted position that for the purpose of MODVAT Credit Scheme, there is no one-to-one relationship of input and final product for the purpose of utilisation of credit. Therefore, in such a view of the matter, there is a lot of force in the submission of the appellant which is accordingly accepted and the appeal is consequently allowed. He pleaded that in terms of Rule 57F(3) the appellants should be allowed the MODVAT Credit.”
3. The learned DR adopted the reasoning of the authorities below.
4. We observe that admittedly the final product manufactured by the appellants is not suffering any duty. The purpose of the MODVAT Scheme is to mitigate the cascading effect of the duties in the final product and the MODVAT Credit is allowed to be utilised only for payment of duty on the finished product. The question that arises for consideration is whether when the final product of the appellants is not suffering any duty, the appellants can be allowed to take MODVAT Credit in respect of the inputs used. A reading of the various Central Excise Rules and the Scheme of the MODVAT set out therein shows that the facility of MODVAT Credit is available in respect of duty paid on inputs used in or in relation to the manufacture of the specified final product and for utilising the credit so allowed towards payment of duty of excise leviable on the final product. When therefore, there is no duty leviable on the final products which have been cleared from the appellants’ factory, the question of allowing them the MODVAT Credit on the inputs would not arise. Rule 57C of the Central Excise Rules clearly envisages that no credit of the 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. The appellants’ plea is that as it is the final product is not exempt from payment of duty and only for the specific contingency of supply of the goods to the 100% EOU, the appellants are not called upon to pay duty. We observe that the MODVAT Scheme is applicable to a manufacturing unit to mitigate the impact of cascading effect of duty in respect of individual product manufactured in a particular unit. In case a particular manufacturer is clearing the goods without payment of duty, be for any reason, the question of allowing the unit the benefit of MODVAT Credit would not arise. The ratio of the ruling cited by the appellants is distinguishable as in that case the finished product was being cleared on payment of duty. The only point made was that since the input credit was more than the duty payable on the finished product, the MODVAT Credit earned could be utilised for payment of duty on the products manufactured in the factory. In view of above, we hold that there is no force in the appellants’ plea and we dismiss the appeal.