C.C.E. Vs. SREE LAKSHMI VENKATESWARA SPG.

JUDGEMENT

(1.) The respondents in this appeal of the Revenue were engaged in the manufacture of "Cotton Yarn" (Chapter 52 of the CETA Schedule) and were availing the benefit of capital goods credit under Rule 57Q of the Central Excise Rules, 1944 during the material period (1 -3 -1997 to 31 -8 -1997). They had taken total credit of Rs. 31,55,136/ - on capital goods received by them during the said period. The Department took the view that it was not open to them to avail such credit on capital goods which were used not only for the manufacture of Cotton Yarn (dutiable final product) but also for the manufacture of Cotton Waste (Hard Waste), which was wholly exempt from payment of duty. It was felt that the above availment of capital goods credit was in contravention of Rule 57R(1) of the Central Excise Rules, 1944. Accordingly, a show cause notice was issued to the respondents, directing expunction of the above credit under Rule 57U. The original authority disallowed the above credit, but the first appellate authority set aside the order of the lower authority, accepting the assessee's contention that Modvat credit of the duty paid on capital goods which were used for the manufacture of Cotton Yarn, which was cleared on payment of duty, was admissible to them. The Revenue has filed the present appeal, challenging the view taken by the Commissioner (Appeals).

(2.) Ld. SDR has reiterated the grounds of the appeal and has also pointed out that, as the respondents had removed Cotton Waste (Hard Waste) without payment of duty during the period of dispute, they were not entitled to take Modvat credit of the duty paid on capital goods used for the manufacture of the said product. Ld. Consultant for the respondents has sought to defend the impugned order by relying on Sub -rule 2 of Rule 57T as well as the following decisions of the Tribunal : (i) Darshan Agroils Ltd. v. Commissioner of Central Excise, Lucknow [2000 (125) E.L.T. 1249 (Tribunal)]. (ii) Final Order No. 971/2004, dated 5 -11 -2004 in Gobald Textiles (P) Ltd. v. Commissioner of Central Excise, Coimbatore (Appeal No. E/957/2004).

(3.) Upon considering the submissions, we find substance in the arguments of the ld. Consultant. Sub -rule 2 of Rule 57T, as this Rule stood during the material period, required that a declaration be filed with the jurisdictional Assistant Collector of Central Excise by the manufacturer of final product seeking to avail Modvat credit on any capital goods, to the effect that such capital goods shall not be used exclusively for production of any final product which was wholly exempt from payment of duty. The word 'exclusively' occurring in the above provision is significant. The legislative intent behind the use of the word 'exclusively' in the provision is obvious. Capital goods in respect of which the manufacturer wanted to avail Modvat credit could not be used exclusively for production of final products exempt from payment of duty. It could be used for production of both dutiable and exempt final products. The appellant has harped on the fact that the word 'exclusively' was absent in Sub -rule 1 of Rule 57R during the period of dispute. We find that the interpretation given to Rule 57R(1) by the appellant has been rightly rejected by ld. Commissioner (Appeals) who found that, under the said provision, as it stood during the period of dispute, credit of duty on capital goods used in the manufacture of Cotton Yarn, which was not exempt from payment of duty, was admissible irrespective of the fact that Cotton Waste (Hard Waste), which was exempt from duty, was also generated during the course of manufacture of Cotton Yarn. In any case, as held by the Tribunal in the case of Gobald Textiles (supra), the Hard Waste, which was cleared without payment of duty during the relevant period was not to be treated as a final product. The Revenue has no case that the respondents were registered with the Department for manufacture of Hard Waste. In the case of Darshan Agroils (supra), it was held that "waste and scrap arising in the course of manufacture of metal containers could not be treated as final product". It could be analogously held that Hard Waste rising in the course of manufacture of Cotton Yarn cannot be considered as a final product. We find that the whole case of the Revenue is based on the premise that Cotton Waste (Hard Waste), which arose during the course of manufacture of Cotton Yarn in the respondents' factory during the period of dispute was a final product for the purpose of Rule 57R. This premise is erroneous and, consequently, the Revenue's case is devoid of merit. The appeal is rejected. (Operative portion of the order was pronounced in open court on 28 -3 -2005).