TMI Blog2017 (11) TMI 1104X X X X Extracts X X X X X X X X Extracts X X X X ..... that it was not required that the said inputs should contain in the final products. The testing is an integral part of manufacturing process and MODVAT is available as per Rule 57A. The order passed by the Tribunal is fully justified as the Tribunal has categorically recorded the finding of fact, after perusal of the report of defect work that the MODVAT credit has been availed by the assessee company on the inputs/ parts, of the watches at the time of the receipt of the same, before putting to use and that the assessee company has conducted certain test to find out as to whether the inputs to be usable or not. In respect of the inputs which were not found fit to be used, the assessee company has reversed credit thereon and rest of the inputs were issued by the respondent for process or assembling of watches, and during the course of manufacture of watches, certain inputs were found defective during further test and certain inputs were lost while manufacturing the goods. The MODVAT credit cannot be denied applying the provisions of Rules 57-D when duty has indeed been paid - In the instant case of the appellant during the period in dispute scrap valued at ₹ 78,53,77 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ged that the company have contravented the provisions of Rule 52-A, 57-A, 57-F(3), 173(F) and 173 (G). A team of Central Excise Officers of NOIDA have visited the factory premises of the assessee company on 21.12.1998. The checking has been conduced at the unit of the assessee. During the course of the scrutiny of the records it is alleged that the company was prepared a statement regarding RDW (Report of Defective Work), which showed that the inputs valued at the rate of ₹ 3,09,48,516/- had been destroyed as on 31.10.1998. At the time of checking the statement of one Paritosh Jain was recorded and according to the department he has stated that he is authorised for Central Excise Matters on behalf of the company. During the course of confrontation with regard to RDW Sri Paritosh Jain has stated that the said document stands generated and certain quantities of inputs have been sent back from assembly to stores giving therein cause for rejection. The said documents have been signed by Paritosh Jain and during the course of scrutiny it is revealed that certain quantity of RDW has been destroyed. Based on the aforesaid statement and confrontation and as per RDW , for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunal has found that while deciding the case the main issue i.e. that the disputed watch parts in respect of which the MODVAT credit has been availed by the assessee company had become waste during the course of manufacturing process, or they were already defective before they were put to use in the manufacturing process of watches is not properly examined by the Commissioner and the Commissioner without verification has denied the MODVAT credit when the disputed watch parts had become short in or in relation to the manufacture of the watches. Before the Tribunal the appellant has submitted that the company was using duty paid parts and were availing of the benefit of MODVAT credit under Rule 57-A of the Rules. A number of parts after receipt in the factory of the assessee company and after the MODVAT credit in respect of such part of availed of, were found defective and were not used in the manufacture of watches had already been availed of, therefore, it was the contention of the assessee company that the parts as such were wasted during the process of manufacturing of watches the MODVAT credit was not required to be denied to the company in terms of the Rule 57-D of the Rules ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the manufacturing process only. He has further submitted that the conclusion arrived at by the Tribunal is purely a factual conclusion and there is no question of any point of law involved in the present appeal as required under Section 35-G of the Central Excise Act, 1944. Learned counsel for the assessee company has submitted that the Tribunal has discussed the issues at length with regard to as to whether the inputs on which the respondent company has taken the MODVAT credit have been put to use for manufacturing of watches or not and as to whether there were shortage of inputs in the facts and under the circumstances of the present case. The Tribunal has verified all the evidences and therefore, concluded that the assessee company has taken the MODVAT credit correctly and consequently they are not required to reversed the MODVAT credit taken by them while setting a side the order passed by the Commissioner of Central Excise. For deciding the issue in hand it would be relevant to consider the certain provisions of law. Rule 57-A of the Central Excise Rules 1944 provides as follows : Rule 57A. Applicability - (1) The provisions of this section shall apply to such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee has therefore, submitted that the inputs are lost/ destroyed or have become waste after they are received on the production floor in the factory premises. Further, the tests during which inputs were destroyed/ become waste are integral to the manufacturing process i.e. without which the inputs cannot be used in manufacturing the watches. Therefore, the testing of inputs is in relation to the manufacture of final product (i.e. watches) and the assessee company cannot be denied to the MODVAT credit in terms of Rule 57A read with Rule 57D of the Central Excise Rules, 1944. Learned counsel for the assessee company has relied upon judgment of the Delhi High Court in the case of Asahi India Safety Glass Ltd. vs. Union of India 2005 (180)ELT 5 (DEL). The Delhi High Court has held that the benefit of Rule 57D has to be extended to the float glass not found defective per se and after being put on the float table, and after being cut, broken and washed defects were noted on inspection. It was also held that the process of manufacturing began with putting the float glass on table and therefore, it was used in relation to manufacture of safety glass. The counsel for the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igible for Cenvat/Modvat Credit. On facts it was held that flexible laminated plastic film and poly paper, used for testing, tuning and adjusting various parts of fill and seal machines, tailor made according to requirements of individual customers, were inputs eligible for Cenvat/Modvat credit under Rule 57 A of erstwhile Central Excise Rules, 1944. Though the ratio of this judgment is not similar to the present case, however, it can be referred in order to prove that the testing is an integral part of manufacturing process and MODVAT is available as per Rule 57A. Learned counsel for the assessee has also relied upon the decision of Bombay High Court in the case of Tata Engg. Locomotive Co. Ltd. vs. CCE 2010 (256) ELT 56 (Bom.). In this case the Court has held as under : 33. Having seen the judicial pronouncements expanding the scope of Rule 57A and accepted by the Board vide its Circular dated 4th May, 1994 referred to hereinabove, one has to put a question, can it be said that input or material on which Modvat credit is taken, if subjected to testing in a laboratory to determine tensile strength and other quality but not physically used in the manufacture of the fin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dentifiable by a functional check. M-4 Defect due to the design and dimensional problem by a functional check. M-5 Defect due to components fabricated in house plastic/dial shop. M-6 Defects returned to the supplying vendors for salvage/purchase returns. These are returned after debiting/reversing the modvat credit availed or under Rule 57D F1 (ii). Z-1 Defective components taken out from the market returned watches being repaired under Rule 173H. Duty on these reversed on periodical basis. In para 9 the following findings have been recorded by the Tribunal: 9. The defective goods were found only after inputs were issued for processing or assembling of watches. This fact has not been disputed and on the basis of record it is ascertained that these inputs were issued for manufacturing watches. Therefore, it cannot be said that the inputs were not put to use. Therefore, in terms of Rule 57D of erstwhile Central Excise Rules, 1944, the inputs have become waste during the course of manufacture or used in or in relation not the manufacture of the final product are eligible for modvat credit. In the impugned order, the Commissioner himself observed that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... being emanating as result of Research Development (R D) process which is quite distinct fromo the manufacturing activity as contemplated in Rule 57A ibid. The Tribunal has further recorded categorical finding of fact in para 11 of its judgment, which is quoted hereinbelow : I find that for shortage of inputs, the appellants have explained general ledger of stock adjustment account reflected the shortages of inputs on physical verification. However, in the same general ledgers excesses have also been found over the recorded balances of various inputs. It shows that the inputs have been short accounted in some cases and in some other cases the inputs are in excess, therefore, there is no actual shortage of inputs. The shortages and excesses are due to the fact that stock accounting used to be done on weighment basis since the minute inputs ran into millions and physical counting is not possible. The Commissioner has not given any credence to the defence taken by the appellant for shortages of the inputs have not verified the said fact with cogent evidence. Therefore, the defence taken by the appellant is acceptable. Accordingly, I hold that there is no shortage of inputs as ..... X X X X Extracts X X X X X X X X Extracts X X X X
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