TMI Blog1995 (7) TMI 178X X X X Extracts X X X X X X X X Extracts X X X X ..... ylon chips cleared on payment of duty from their factory are returned for subjecting them to the process of colouring or compounding. When such chips are received back, duty paid thereon at the time of clearance is taken as Modvat credit for utilisation against the duty payable on Nylon chips obtained out of them. The Deptt. objected to these credits on the ground that the declaration filed by them under Rule 57G indicates input as Nylon 6 chips coloured/compounded and the final product is also the same. Hence there is no manufacture involved and such duty-paid final products returned for reprocessing cannot get credit under Modvat scheme. Based on such an objection, show cause notices were issued demanding reversal of Modvat credit taken and the Collector adjudicated on these show cause notices, confirming the demands for recovery of Modvat credits, so taken. The present appeals are against two such orders of the Collector. 3A. After hearing the elaborate arguments from both the sides (which, for the sake of brevity, are not reproduced separately but are dealt with in appropriate places in our findings), we find the basic issue to be considered is whether there is a manufacture ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is made. The object of the MODVAT Scheme is to avert the cascading effect of the input taxation on the value of the final product. When the object of the Scheme is as above, such a scheme cannot be construed to be the one of re-imbursing the duty element to the assessee in respect of the returned materials, which are subject to re-processing, for which separate legal provisions exist. Since the object of the MODVAT Scheme as reflected in Rule 57A is to give credit only in respect of such inputs, which are used in or in relation to the manufacture of the final product and not in the case of rejected materials, brought for the purpose of re-processing or re-conditioning, it will be difficult to accept the proposition that MODVAT Scheme could be utilised for such purpose. We also considered the observations of the Collector (Appeals), citing the Boards circular. Though any such circular does not have a legally binding force, we looked into that. This circular is particularly with reference to metal products, where, on account of damage, the goods may have to be scrapped and melted and then manufactured into new product. The test therefore to be applied is whether there is any manuf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess the appellants could establish that returned Nylon 6 chips have undergone a process, amounting to `manufacture . 5.2. After going through the processes undertaken and having regard to the Supreme Court decisions on `manufacture , we propose to consider this question in detail. In the case of Dy. Commissioner of Sales Tax v. Pio Food Products - 1980 (6) E.L.T. 343 (S.C.), the Supreme Court held that even if there is a considerable degree of processing, where pineapples were subject to removal of inedible portions, edible portions sliced and added with sugar and the canned fruit was priced higher than the fruit, it cannot amount to manufacture and the test for determining is whether the commodity subject to processing, results in a commodity recognised in the trade as a new and distinct commodity. Then only such processes can amount to manufacture. In the case of U.O.I. v. Delhi Cloth Mills, 1977 (1) E.L.T. 199, the Supreme Court held that manufacture involves bringing into existence a new substance. The Apex court approvingly quoted an American judgment for defining the precise scope of `manufacture thus - Manufacture implies a change but every change is not manufacture ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... referred to the decision of the Spl. Bench in the case of Indian Cable Company v. C.C.E Calcutta reported in 1984 (15) E.L.T. 434, wherein the Spl. Bench have held that conversion of PVC resins into PVC compound involves the addition of filler, plasticisers, stabilisers and lubricants and the process make it a homogenous mixture, whereby the physical and mechanical properties of P.V.C get modified and they are known by different names, and hence, such a conversion would amount to manufacture. On this, the ld. D.R. pleads that merely because Polymide chips are allowed exemption under Notification No. 217/86-C.E., it cannot be ipso facto construed to be input for compounded chips. The evidences now produced were not produced before the adjudicating authority. These evidences are required to be considered in consultation with technical authorities like Chemical Examiner and also to ascertain the market parlance. Hence, if these evidences are accepted, it would deny such an opportunity to the Deptt. and cause prejudice to the revenue interest. 6. On the eligibility of Modvat credit in respect of plain chips used for obtaining compounded chips, we feel that there might be a case and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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