ORDER
V.P. Gulati, Member
1. This appeal is against the order of the Collector of Central Excise, Cochin. Brief facts of the case are that the appellants are receiving the input Calcium Carbide in metal drums and the value of the package is included in the value of Calcium Carbide received by the appellants and the duty has been paid on this composite value as if it is paid in respect of Calcium Carbide. Calcium Carbide being a declared eligible input under Rule 57F for the manufacture of gases the appellants took Modvat credit in respect of the duty paid on the goods. However, Calcium Carbide, after removal from the drums, is taken as in-process material, while the empty drums are sold by the appellants. The learned lower authority has ordered the recovery of that component of Modvat credit which is attributable to the cost of the drums, since the drums are re-usable and were cleared from the factory. The learned lower authority’s finding in this regard is as under:
In so far as the merits of the case are concerned, it is seen that the value of containers is included in the value of Calcium Carbide and the duty is on ad-valorem basis at 15%. Since the value of metal drums is included in the value of Calcium Carbide and the total is assessed to 15%, there is proportionate amount of duty collected on the value of metal drums also and since the total duty is taken for modvat credit, proportionate amount of duty on the value of metal drums which is included in the value of Calcium Carbide has also been taken for credit, which credit is inadmissible to them by virtue of Board’s instructions dated 9.12.1986. Since the steel drums are admittedly durable and re-usable in nature and these are being sold out from the factory without payment of duty, modvat credit availed on the proportionate value of steel containers is not admissible, as stated. The modvat credit on metal containers is not admissible and it is required to be reversed. This the allegation sustains merits.
On account of the bar of limitation no duty as such has been demanded from the appellants by the impugned order.
2. The appellants have pleaded for decision on the merits of the issue for the reason that it is a recurring issue. It has been pleaded by the learned Consultant that there is nothing in the Modvat Rules to warrant a reversal of the Modvat credit taken and the appellants are, therefore, not liable to pay any duty or reverse the Modvat credit.
3. The learned SDR for the Department adopted the reasoning of the learned lower authority and opposed the prayer of the appellants.
4. We observe under the Modvat Scheme any goods which are brought in the factory can be either utilised for the manufacture of the finished product or can even be cleared out of the factory as such and in which event these goods are at the time of clearance will have to suffer duty as if these are the manufacture of the factory where these were earlier brought in as inputs. In case any scrap is generated during the course of manufacture the said scrap in terms of proviso to Rule 57F(4) may be removed on payment of duty, if such waste is manufactured in the factory or it may be destroyed or it may be allowed to be cleared by an order of the Central Government under Chapter X. The question to be considered here is a to how the drums have to be considered in the context of these rules viz. whether these have to be considered as goods as such which were brought in and removed and, therefore, they should pay duty at the rate at which the duty was charged on Calcium Carbide or the same should be treated as scrap generated during the course of manufacture. We observe that the Modvat credit was taken in respect of the duty paid on the value of the goods treating the whole lot of the goods brought in as Calcium Carbide and the value of the drums was included as if it is the value of Calcium Carbide supplied. After the Modvat credit was taken, the status of the goods changed and instead of the goods being considered as duty paid goods these became goods as if these are the manufacture of the appellants’ factory. But there is no controversy that what was removed from the appellants’ factory were not the goods as these were brought in i.e. Calcium Carbide filled in the drums but only empty drums. The empty drums, therefore, cleared from the appellants’ factory cannot be taken to be goods cleared as such in terms of Rule 57F(2) from the appellants’ factory. However, we observe that the Calcium Carbide drums for the purpose of taking the Calcium Carbide into use had to be opened and the remaining empty drums can be taken to be scrap which arose in the preparatory stages of the manufacturing process. In that view of the matter we hold that the drums can be considered as scrap in terms of Rule 57F(4) and duty on the same can be demanded under the Tariff Heading and the rate applicable to the scrap as such i.e. the rate applicable to the drums as such in the form these are cleared. The appeal is therefore disposed of in the above terms.
