1. The common issue involved in these 4 appeals, filed by M/s. Escorts Ltd., is whether Modvat credit is available to them in respect of duty paid on inputs used in the manufacture of finished goods cleared to their another factory under Notification No. 217/86-C.E., dated 2-4-1986 without payment of duty.
2. Shri V. Lakshmikumaran, learned Advocate, submitted that the appellants are having various divisions in various premises at Faridabad; that the Tractor Engineering Division (TED) manufacture tractor parts which are removed to another division, namely, tractor division where parts are used in the manufacture of tractors; that these parts are cleared without payment of duty availing the benefit of Notification No. 217/86; that the de-partment has disallowed the Modvat credit on the ground that Modvat credit is not admissible when the final goods are cleared without payment of duty. He, further, submitted that the dispute relates to applicability or otherwise of Rule 57C of the Central Excise Rules, 1944 at the material time; that the movement of the goods from one factory to another cannot be taken as clearance of goods at nil rate of duty; that the issue involved stands already decided by the Tribunal in the case of Bajaj Tempo Ltd. v. CCE, Pune - 1994 (69) E.L.T. 122 (Tribunal) wherein the Tribunal has held as under :- "Under the Modvat scheme, credit of duty paid on notified inputs is to be given for payment of duty on the notified final products, if such inputs are used in or in relation to the manufacture of final products and such inputs are not hit by explanation to Rule 57A. This same concept is clearly discernible in Notification No. 217/86.
This notification is mainly intended to avert payment of duty at each intermediate stage and take credit of such duty at each subsequent stage, starting from the basic materials, turning out components and finally ending with the ultimate final product. Such a vertical integration of production line can be in one and the same factory or spread over two or more factories of the same manufacturer. In such cases Notification 217/86 can be availed. They also can take Modvat credit on primary inputs used in the manufacture of secondary inputs (M.V. parts, I.C. engines) so long as the final product namely Motor vehicle pays duty. Hence, we are to agree with the ld. Counsel Shri Lodha that Notification 217/86 stands on a different footing, when it comes for consideration for purposes of applying Rule 57C. It is not like any other exemption, where intention is to forego the levy on the products cleared from the factory." 3. Reliance has also been placed on the decision in the case of National Aluminium Co. Ltd. v. CCE, Bhubneswar - 1997 (95) E.L.T. 331 (Tribunal) wherein it has been held that the purpose of Notification No. 217 is to avoid scriptory work when the whole exempted intermediate product is utilized captively by the same manufacturer either in the same factory or in another factory in the manufacture of dutiable final product; that the Tribunal has held, further, that two factories of the appellants are to be treated as one otherwise the purpose of Notification No. 217/86 will be defeated and it cannot be given effect in case like that of the appellants. Reliance has also been placed on the following decisions :- (1) Hammer forge v. CCE, New Delhi, Final Order No. A/842/2002-NB, dated 4-7-2002, (2) Finolux Inds. v. CCE, Pune, Final Order, C-11/3091/WZB/2002, dated 18-10-2002,CCE, Rajkot v. Unique Chemicals, Final Order No. 585/97-C, dated 21-10-97.
4. Countering the arguments Shri Rajeev Tandon, learned SDR, submitted that the various divisions of the appellants are located in different premises and are separately registered under the Central Excise Law and as such they are different factories; that the tractor parts which are manufactured by the appellants in their Tractor Engineering Div. are finished products; that it has been held by the Bombay High Court in the case of India Vegetable Products Ltd. v. UOI - 1980 (6) E.L.T. 704 (Bombay) that once an item comes into existence with a definite identity the process of manufacture as contemplated by Section 2(f) of the Central Excise Act is complete and merely because such a product is used subsequently for manufacturing another article it cannot be concluded that the earlier manufactured product is not a finished one within itself. He, further, submitted that any excisable goods has to suffer Central Excise duty before its removal from the factory of manufacturer unless and until it is exempted from payment of duty under a notification; that it has been held by the Tribunal in the case of CCE, Bombay - II v. Reliance Textile Pvt. Ltd, - 1986 (26) E.L.T. 227 (Tribunal) that transfer of polyster filament yarn from one unit to other unit for orientation and texturi-sation is not permissible without payment of duty. The learned SDR submitted that at the relevant time Rule 57C of the Central Excise Rules, 1944 provided that no credit of the specified duty paid on the inputs used in the manufacture of final product shall be allowed, if the final product is exempt from the whole of the duty of excise leviable thereon or is chargeable to nil rate of duty; that as the final products of the appellants from the factory in question are tractor parts which are cleared without payment of duty availing the benefit of Notification No. 217/86 the credit of the duty paid on the inputs used in the manufacture of such tractor parts is not admissible in terms of provisions of Rule 57C; that once the exemption is availed on the product in the manufacture of which inputs have been used, the manufacturer becomes ineligible to avail the credit of the duty paid on such inputs under the provisions of Rule 57C; that this was the view expressed by the Larger Bench of the Tribunal in the case of Kirloskar Oil Engines Ltd. v. CCE, Pune, 1994 (73) E.L.T. 835 (Tribunal); that the Larger Bench has held that Rule 57C in very clear terms mandates that no credit of duty paid on the inputs used in the manufacture of final product shall be given if the final product is fully exempt from duty or is chargeable to nil rate of duty; that this decision of the Larger Bench has not been noted in the decisions relied upon by the learned Advocate. Finally he relied upon the decision in the case of Datar Switch Gear Ltd. v. CCE & C, Aurangabad [2003 (153) E.L.T. 106 (T) = 2002 (53) RLT 852 (CEGAT)], wherein it has been held that "removal of goods from one factory to another" even of the same owner would, in our view, certainly be covered by the term "Removal for home consumption." 5. We have considered the submissions of both the sides. Rule 57A of Central Excise Rules, 1944 allows the taking of Credit of the duty paid on the inputs which are used in or in relation to the manufacture of final products. Rule 57C of the Central Excise Rules at the relevant time provides as under :- "Credit of the duty not to be allowed if final products are exempt,-57C. No Credit of the specified duty paid on the inputs used in the manufacture of final product (other than those cleared either to a unit in a Free Trade Zone, or to a 100% Export-Oriented Unit, or to a unit in an Electronic Hardware Technology Park or to a unil in a Software Technology Park) shall be allowed, if final product is exempt from the whole of the duty of excise leviable thereon or is chargeable to nil rate of duty." 6. It is thus apparent from the provisions of Rule 57C that for taking the Modvat credit of the duty, the inputs should not be used in the manufacture of final products which are exempt from the whole of the duty or are chargeable to nil rate of duty. Under Section 3 of the Central Excise Act duty is chargeable on all excisable goods which are produced or manufactured in India at the rates set-forth in the Schedule to the Central Excise Tariff Act. The Central Excise Tariff may contain nil rate of duty. Further, Section 5A of the Central Excise Act empowers the Central Government to exempt the excisable goods from the whole or any part of the duty of Excise leviable thereon. The Central Government in exercise of the powers vested under Section 5A of the Central Excise Act has exempted excisable goods from payment of whole of the duty, if the goods are removed to another factory of the same manufacturer subject to following the procedure prescribed under Chapter X of the Central Excise Rules. We find considerable force in the submissions of the learned SDR that as far as the removal of the goods from the factory of the appellants is concerned it is to be governed by the provisions of Central Excise Act and Rules and duty has to be paid subject to availability of any exemption before the goods can be removed from the factory. It is not in dispute in the present matter that the goods have been removed from one factory to the another factory of the same manufacturer without payment of duty. The fact however, remains that the excisable goods which were manufactured had been removed from the place of manufacture to another factory and have been used in the manufacture of further excisable goods. Once the duty leviable thereon is exempted wholly the provisions of Rule 57C are attracted. The Larger Bench of the Tribunal has, in very clear terms, held that Rule 57C mandates that no credit of duty paid in inputs used in the manufacture of final product shall be given, if the final product is wholly exempt from payment of duty or is chargeable to nil rate of duty. We also observe that Rule 57C itself contains exceptions in respect of which the provisions will not be applicable. These exceptions are the clearance of goods to an unit in a Free Trade Zone, or to a 100% E.O.U. or to a unit in Electronic Hardware Technology Park or to an unit in Software Technology Park. Rule 57C does not contain any other exception. In absence of any other exception provided in Rule 57C it cannot be claimed that if the goods are cleared to another factory of the same manufacturer the provisions of Rule 57C would not apply. Judicial proprietary also demands that the decision pronounced by the Larger Bench of the Tribunal should be followed by all the Benches. Thus following the ratio of the decision of the Larger Bench in the case of Kirloskar Oil Engine Ltd. we hold that the Modvat credit is not admissible to the appellants in respect of the tractor parts cleared by them without payment of Central Excise duty. All the appeals are, thus, rejected.