Full Judgment
2. Shri Rajesh Chhibber, learned Advocate submitted that the Appellants manufacture PVC Sheeting/Films, Floor Covering and PVC Foamed Fabrics; that they availed the Modvat Credit of duty paid on the inputs; that they have filed declaration in respect of rejected PVC Sheeting and PVC Laminated Fabrics as their inputs; that on receipt of the rejected PVC Sheeting, they took Modvat Credit, melted the same along with other chemicals/materials for the manufacture of fresh goods; that the Department has disallowed the Modvat Credit on the ground that the final products cannot be the inputs of the final products. The learned Advocate submitted that the issue involved in the present appeals stands settled by the decision of the Larger Bench of the Tribunal in the case of Hindalco Industries Limited v. CCE, Allahabad 2000 (38) RLT 986 (T), wherein the Tribunal allowed Modvat Credit in respect of defective/rejected final products cleared by the Appellants therein on payment of duty and received back and used in or in relation to the manufacture of final products. He also referred to the decision of another Larger Bench of the Tribunal in the case of CCE, Meerut v. Tin Manufacturing Co. and in the case of CCE v. Bhushan Steel & Strips Limited 3. Countering the arguments, Shri S.C. Pushkarna, learned JDR, submitted that the finished products cannot be an inputs for the manufacture of the same finished products; that in some cases the goods were even returned from their own warehouse.
4. I have considered the submissions of both the sides. It has not been disputed by Revenue that the final products manufactured by the Appellants were cleared on payment of duty and were subsequently received back in their factory on account of being defective or rejected. It has also not been disputed by Revenue that the Appellants have declared rejected/defective final products as their inputs. It has been contended by the learned Advocate for the Appellants that these goods were melted along with-other chemicals/raw materials and used in or in relation to the manufacture of finished goods. It cannot be claimed by Revenue that the said goods are not inputs merely because these are finished goods. It has been held by the Larger Bench of the Tribunal in the case of Tin Manufacturing Co. that "According to Rule 57A duty paid on the inputs used in the manufacture of final products is eligible for Modvat Credit. The requirement is that the goods must be specified. In the present case, there is no dispute that the goods are specified and therefore eligible. There is also no dispute that the duty had been paid on the defective metal containers. Once these containers were found to be defective, they could not be used as such.
They had to be re-made into new metal containers, which met the specifications. In that view of the matter the defective containers were used as inputs.... Upon their rejection, they became inputs in the manufacturing of new metal containers and once they are used as inputs duty paid on them can be taken as modvat credit." Following the ratio of the decisions relied upon by the learned Advocate, I set aside the impugned Order and allow both the appeals.