Full Judgment
3. The goods were cleared after paying customs duty including additional duty of customs. On receipt of the goods in its factory, the appellant took Modvat credit of the additional duty of customs. The department objected to this by issue of notice on the ground that the finished goods cannot be inputs, and, in cases of return of goods, the provisions of Rule 173L that would apply. The Assistant Commissioner confirmed the proposal in the notice issued to the appellant which embodied this objection. On an appeal by the assessee the Commissioner (Appeals) held that there was no prohibition in law that finished goods being considered to be inputs and allowed the appeal and set aside the order of the Assistant Commissioner. Hence this appeal by the department. 4. The ground in the department's appeal is the reiteration of the grounds in the notice that the assessee ought to have followed the procedure prescribed under the provisions of Rule 173L, to avail which it has been granted permission. The decision of the Tribunal in Orissa Extrusions Ltd. v. CCE -1998 (104) E.L.T. 42 and Sigma Paints v.CCE -1994 (69) E.L.T. 779 are cited in support of the ground that finished goods cannot be inputs. The second decision has to be distinguished on facts, because the Tribunal had found that reconditioning of the goods in that case did not amount to manufacture.
5. The decision of the Tribunal in Orissa Extrusion Ltd. v. CCE is of a single member. In that decision it has held that the conversion of defective aluminium extrusion into aluminium extrusion having no defects did not bring into any new or different commodity having a different name, character and use which is the test prescribed by the Court for manufacture. This decision has not taken into consideration the decision of the Tribunal in Alco-bex Metals Ltd. v. Collector 1993 (68) E.L.T. 146. The ratio of this decision of a two-member bench is that the making good quality of goods out of defective goods amounts to manufacture. The subsequent decision of the Larger Bench in CCE v. Tin Manufacturing Company - 2000 (119) E.L.T. 290 confirms the correctness of this decision. Therefore, where a manufacturer converts defective final product earlier cleared by him into such products not defective by a process of manufacture, as it is understood in law, such defective finished goods would be inputs for him. There is no allegation in the case before me that the activity undertaken by appellant did not amount to manufacture.