1998 (11) TMI 561 - AT - Central Excise

Summary

Issues:
1. Modvat credit benefit on Phenol used in the manufacture of Thinner for Winding Wires.
2. Classification of Thinner as an intermediate product in the manufacture of Insulating Varnish.
3. Applicability of Rule 57-D for Modvat credit on Thinner.

Analysis:

1. The appellant sought Modvat credit benefit on Phenol used in the manufacture of Thinner for Winding Wires. The appellant manufactures Copper Winding Wires and Insulating Varnish, using declared inputs for availing Modvat credit. A portion of Phenol is used in Thinner to adjust viscosity for Insulating Varnish, which is cleared for captive consumption. The Department issued a Show Cause Notice for wrong Modvat credit availed on Phenol, leading to demand confirmation by the Assistant Collector. The appeal was dismissed, questioning the admissibility of Modvat credit under Rule 57-D(ii).

2. The key issue was whether Thinner qualifies as an intermediate product in the manufacturing process of Insulating Varnish. Thinner, used to adjust viscosity, was considered by the appellant as an intermediate product. However, the Tribunal found that Thinner and Insulating Varnish are distinct products manufactured through different processes. Thinner's purpose is to prepare the varnish for insulating wires, making both products independent and non-intermediate. Consequently, Rule 57-D was deemed inapplicable, leading to the rejection of the appellant's claim for Modvat credit on Thinner.

3. The appellant contended that Thinner, used in the manufacture of Copper Winding Wires, qualifies for Modvat credit under Rule 57-D(2) as an exempt final product. However, the Tribunal rejected this argument, emphasizing that Thinner, being a final product exempt from duty, does not qualify as an intermediate product under Rule 57-C. As Thinner is not deemed an intermediate product in the manufacturing process, the Tribunal upheld the decision to reject the appellant's claim for Modvat credit.

In conclusion, the Tribunal denied the appellant's appeal, stating that Thinner does not meet the criteria of an intermediate product for Modvat credit under Rule 57-D. The judgment emphasized the distinction between Thinner and Insulating Varnish, leading to the rejection of the appellant's claim for Modvat credit on the Phenol used in the manufacture of Thinner.