Full Judgment
As the issue involved in both the appeals and the arguments advanced by both the sides in these appeals are similar, they are taken up together for disposal as per law.
2. Appeal No. E/406/99Md filed by the Revenue arising out of order in appeal No. 188/98 (CBE) dated 24.12.1988 passed by the Commissioner (Appeals) Trichy is against M/s Salzer Spinners Ltd. The Commissioner (Appeals) has held that the assessees are entitled to avail the Modvat Credit of duty paid on the capital goods under Rule 57Q of the CE Rules, 1944. The department has filed the appeal on the ground that the capital goods used or the manufacture of dutiable and exempted final goods during the period from 1.3.97 to 31.8.97 would quality for Modvat Credit under Rule 57Q only after amendment of the Notification No. 6/97 CE(NT) dated 1.3.97 by Notification No. 46/97 CE(NT) dated 1.9.97. The Revenue has submitted that in the Budgat 1997 the word 'exclusively' was omitted from Rule 57R(1) and the same was reintroduced by Notification No. 46/97 CE(NT) dated 1.9.97 as capital goods which were used for the manufacture of both exempted as well as dutiable goods, during the intervening period i.e. 1.3.97 to 31.8.97, are not eligible for the benefit of Modvat Credit. Therefore, the credit availed during the above period is required to be expunged, claimed the department.
Further it was contended that Sub-rule (2) of Rule 57R speaks about credit not t be denied on the ground that intermediate products which arise in the course of manufacture of the final product and such intermediate products for the time being exempt from the whole of duty, which is not applicable in the instant case as interpreted by the Commissioner (Appeals). The department has therefore prayed that the order in appeal No. 188/98-CBE dated 24.12.1988 may be set aside and the order in original be restored.
3. Shri Sounderarajan, learned DR for the Revenue reiterates the above mentioned grounds of appeal and prayed that the impugned order of the Commissioner (Appeals) may be set aside and the order of the original authority be restored.
4. Shri J. Sankararaman, learned Counsel for the respondents viz. M/s Salzer Spinners Ltd. submitted that they are manufacturing cotton yarn and in the process of the manufacture of good quality cotton yarn on which duty is paid, waste yarn also emerges which is cleared without payment of duty. He has submitted that since they are manufacturing dutiable goods only and the waste, an entangled mass of yarn emerges, which is exempt from payment of duty. In other words they are manufacturing only cotton yarn which is dutiable and they have not installed the machinery for manufacturing waste yarn. Prior to the Budgat 1997, the position was that if the exempted goods were exclusively manufactured from capital goods, then Modvat Credit was not entitled on such capital goods. Therefore this was not the situation in their case and they have been manufacturing dutiable goods from the very beginning. The contention of the department that they had used the said credit for the manufacture of finished product hard waste which was fully exempt from duty is not legally correct and they are entitled for the benefit of Modvat credit under Rule 57Q of the CE Rules, 1944.
He submitted that the learned Commissioner (Appeals) in para 3 of his findings has analysed the whole issue and has held that assessee had manufactured cotton yarn and cleared the same on payment of duty and the order of the lower authority denying the credit on the ground that hard waste was manufactured which was exempt from payment of duty was found not acceptable by the Commissioner (Appeals) and he has held that credit of duty is admissible to the appellants in respect of capital goods which were used in the manufacture of cotton yarn and the hard waste was obtained as a by-product. He also discussed Sub-rule (1) of Rule 57R which provides that the credit of specified duty paid on the capital goods shall not be allowed if such capital goods are used exclusively for production of a final product which is exempt from the whole of duty of excise leviable thereon or chargeable to nil rate of duty. The Commissioner has held that the assessee had not used the capital goods exclusively for the manufacture of exempted product i.e.
hard waste but they had manufactured cotton yarn which was cleared on payment of duty and the plant was installed for production of cotton yarn only which was never exempted from payment of duty. But the entangled mass of yarn is a by-product only. They have therefore submitted that the order of the Commissioner (Appeals) is legal and it has to be confirmed and the department's appeal has to be reject. The learned Counsel has also invited my attention to the final order No.927 - 931/2001 dated 15.6.2001 of this Tribunal in the case of CCE, Coimbatore v. Hindustan Spinners Ltd. and Ors. in which the Tribunal has held that the Commissioner (Appeals) has correctly arrived at the conclusion after properly analysing the provisions of Rule 57R and the amendment to Notification No. 46/97 CE dated 1.9.97, and the Bench did not find any infirmity in the said order and the Revenue appeals were rejected.
5. Appeal No. E/407/99 arises out of the order in Appeal No.24/99-(CBE) dated 18.01.1999 and is against M/s. DBV Cotton Mills Ltd. The Revenue has filed this appeal on the same grounds which have been taken in the other appeal filed by the Revenue against M/s. Salzer Spinners Ltd. and has prayed for setting aside the order in appeal and restoring the order of the original authority.
6. Shri S. Venkatachalam, learned Counsel for the respondents invited my attention to para 3 of the finding of the Commission (Appeals) wherein the Commission (Appeals) has analysed the whole issue. This para is extracted herein below: (iii) cleared to a unit in an Electronic Hardware technology park or Software Technology Parks; Vide amendment Notification No. 46/97-CE dated 1.9.97, the words "Capital goods which are used in the manufacture of final products" were substituted by the words "Capital goods which are used exclusively in the manufacture of final products". The lower authority has therefore, interpreted that during the period from 1.3.97 to 31.8.97 if exempted products were also manufactured by the appellants, the credit of duty on the capital goods was not admissible during the above period. This interpretation is not correct because even in the un-amended Rule 57R with effect from 1.3.97, credit of duty on the capital goods used in the manufacture of cotton yarn which is not exempt from duty is admissible even though cotton waste (hard waste) was obtained during the course of manufacture of final product and which was exempted from duty or they had got converted the yarn in plain reel hanks. Sub-rule (2) of Rule 57R further provides that the credit of the specified duty allowed in respect of any capital goods shall not to be denied or varied on the ground that intermediate products have come into existence during the course of manufacture of the final product and that such intermediate products are, for the time being, exempt from the whole of the duty of excise leviable there-on or chargeable to nil rate of duty. In view of the above provisions, the appellants are eligible for the credit of duty on the capital goods during the period from 1.3.97 to 31.8.97.
3. I have gone through carefully the facts of the case and the submissions made by the appellants. The question involved in this appeal is as to whether the credit of duty on the capital goods is admissible to the appellants during the period from 1.3.97 to 31.8.97 under Rule 57R which was subsequently amended by Notification No. 46/97-CE(NT) dated 1.9.97. In the Budgat of 1997 Chapter AAAA relating to the credit of duty on capital goods was substituted vide Notification No. 6/97-CE(NT) dated 1.3.97. Sub-rule (1) of Rule 57R prior to its amendment vide Notification No. 46/97-CE(NT) reads as follows:- RULE 57R, CREDIT OF DUTY NOT TO BE ALLOWED OR DENIED OR VARIED IN CERTAIN CIRCUMSTANCES AND ADJUSTMENT IN DUTY CREDIT.-(1) No credit of the specified duty shall be allowed on capital goods which are used in the manufacture of final products (other than final products which are exempt from the whole of the duty of excise leviable thereon under any notification where exemption is granted based upon the value of quantity of clearances made in a financial year) which are exempt from the whole of the duty of excise leviable thereon or are chargeable to nil rate of duty except when the final They have also submitted that what they have manufactured was only cotton yarn and they have installed the capital goods for the purpose of manufacture of cotton yarn which was cleared on payment of duty and the by-product 'hard waste' emerged in the process of manufacture of good quality yarn, and credit on capital goods cannot be denied to them. He has also relied upon the order of this Tribunal in the case of CCE, Coimbatore v. Hindustan Spinners Ltd and Ors. (supra).
7. I have carefully considered the submissions made by both the sides and perused the order passed by the Commissioner (Appeals) and appreciated the submissions made by the assessee that they have installed the capital goods only for manufacture of cotton yarn on which they have been paying duty and not for the hard waste which emerged as a by-product during the course of manufacture of cotton yarn. The hard waste is nothing but entangled mass of good quality yarn which would have been cleared on payment of duty but for the fact that the yarn got entangled and had to be sold as waste. I find that this Tribunal in similar matter is the case of CCE, Coimbatore v. Hindustan Spinners Ltd. and Ors. vide Final order No. 927 - 931/97 dated 15.06.2001 has held that the assessees are entitled to Modvat Credit and the Revenue appeals were rejected. In view of the above, I hold that the Commissioner (Appeals) in both the impugned orders has analysed the whole issue and has arrived at a correct conclusion in favour of the assessee and I do not find any infirmity in the orders passed by the Commissioner (Appeals) and I confirm the same and dismiss the Revenue appeals.