2005 (8) TMI 517 - AT - Central Excise

Summary

Issues:
1. Denial of Modvat credit on inputs used in the manufacture of exported goods.
2. Interpretation of Rule 57C of the Central Excise Rules, 1944.

Analysis:

Issue 1: Denial of Modvat credit on inputs used in the manufacture of exported goods
The appeal was filed by the Revenue against the order of the Commissioner (Appeals) who denied Modvat credit on inputs used in the manufacture of exported goods. The Commissioner held that denying credit on inputs solely because the finished goods were exported and attracted a Nil rate of duty was not justified. It was emphasized that there is no authority to deny Modvat credit on inputs used in the manufacture of final products meant for export. The Commissioner also highlighted the Advance Licence Scheme, which allows duty benefits on imported materials under a Customs Notification. The Revenue contended that since export goods are exempt from duty payment, Modvat credit should not be allowed. The Revenue relied on a previous Tribunal decision where it was held that a manufacturer is not entitled to Modvat credit if the final product is not subject to duty. However, the Tribunal in the current case noted that Modvat credit is available for duty paid on inputs used in the manufacture of specified dutiable final products, and when no duty is paid on the final product, Modvat credit cannot be denied.

Issue 2: Interpretation of Rule 57C of the Central Excise Rules, 1944
The Department argued that under Rule 57C of the Central Excise Rules, 1944, credit cannot be availed on export goods exempted from duty. However, the Tribunal disagreed with this interpretation, stating that the Modvat Scheme itself allows for the refund of accumulated Modvat credit on inputs when the final product is exported. Rule 57C is applicable when final products are cleared for domestic consumption, not when dutiable goods are exported. The Tribunal found no merit in the Revenue's appeal and rejected it, emphasizing that the denial of Modvat credit on inputs used in the manufacture of exported goods was not sustainable under the current legal framework.

This judgment clarifies the entitlement to Modvat credit on inputs used in the manufacture of goods meant for export and provides a detailed interpretation of Rule 57C of the Central Excise Rules, 1944 in the context of duty exemptions on exported goods.