1997 (12) TMI 374 - AT - Central Excise

Summary

Issues: Modvat credit eligibility for clearances to 100% Export Oriented Unit under Rule 57C.

Issue Analysis:
The appeal involved a dispute regarding the eligibility of Modvat credit for clearances to a 100% Export Oriented Unit (EOU) under Rule 57C of the Central Excise Rules. The appellants, who manufactured perfumery base, availed of Modvat credit but faced proceedings initiated by the Department through Show Cause Notices. The Department argued that clearances to the EOU would be affected by Rule 57C, which prohibited Modvat credit if the final product was exempt from duty or had a nil rate of duty. The lower authorities upheld the demand for duty, stating that the appellants were not entitled to Modvat credit for inputs used in the final product cleared to the EOU under the unamended Rule 57C. They also held that the amending Notification of 1992 could not have a retrospective effect.

Case Law and Precedent:
The appellant's counsel cited various Tribunal decisions, including Orissa Synthetics Ltd., Reliance Industries Ltd., Indian Aluminium Co. Ltd., and J.K. Synthetics Ltd., to support their position. These cases highlighted that similar amendments to Rule 57C did not apply to exports without payment of duty. The Tribunal relied on a judgment of the Delhi High Court in Hindustan Aluminium Corpn. Ltd. case, stating that goods exported under bond should not be considered exempt from duty or subject to nil duty. The Tribunal decisions clarified that provisions like Rule 57C did not bar credit for goods exported under bond, aligning with the Modvat scheme's export provisions.

Decision and Rationale:
After considering the submissions and precedent decisions, the Tribunal found in favor of the appellants. The Tribunal applied the reasoning from previous cases to the current situation, emphasizing that the amendments to Rule 57C should not impact clearances to EOUs or goods exported without duty payment. The Tribunal's decision was based on the understanding that the Modvat scheme accommodated exports without duty payment, as evidenced by relevant rules and provisions. The Tribunal also noted that retrospective amendments, like the one in Notification 217/86, should be given effect when clarifying the scope of exemptions for clearances to specific zones or EOUs. Ultimately, the Tribunal set aside the lower authorities' decision and allowed the appeal in favor of the appellants.