1. In all these nine appeals arising from different orders in appeal, the facts and law involved are identical and hence they were taken up together and are disposed of by this common orders.
2. Appeal Nos. E/792 & 793 filed by the Revenue arise from a common Order-in-Appeal Nos. 23 & 24/99 (MDU), dated 5-1-99 passed by the Commissioner of Customs and Central Excise (Appeals), Trichy by which the Commissioner has held that the assessees are eligible for the Modvat credit in respect of capital goods used in textile mills and during the course of manufacture of final product which is chargeable to duty, intermediate product such as combed/carded cotton, also known as "Sliver" also emerges which is exempt from duty. Similar order has been passed by another Commissioner (Appeals) vide Order-in-Appeal No.106/2002 (CBE) (GVN), dated 30-4-2002 allowing the appeal of the assessee in respect of inputs viz. Viscose Stable Fibre which is used in the manufacture of cotton carded/combed.
3. All the other six appeals have been filed by different assessees against the independent orders-in-appeal wherein the Commissioner (Appeals) have rejected the appeals filed by the assessees against the orders-in-original.
4. The brief facts of the case are that the assessees are engaged in the manufacture of cotton yasn falling under heading 5205.00 (erstwhile SH No. 5203.00). They have availed Modvat credit of duty on capital goods/inputs used in the manufacture of the said final product. During the course of manufacture, intermediate products viz. carded/combed cotton which is also known as "sliver'' falling under sub-heading 5202.00 emerges and this intermediate product is an exempted product and is not specified as a final product in the annexure to the Rule 57Q(1). The final product is cleared on payment of duty. Under the circumstances show cause notices were issued alleging wrong availment of Modvat credit on the capital goods/inputs which were used for production of intermediate products as noted above which culminated in the orders-in-appeal which are under challenge as noted above.
5. Shri C. Mani, learned JDR appeared for the department and he submitted that the Notification No. 60/94, dated 21-10-94 which allowed Modvat credit on capital goods such as (a) Blow Room Deduster (b) Blow room ERB and (c) Cherry draw frame commonly known as preparatory machines can be given prospective effect whereas in the instant cases, the capital goods were procured prior to 21-10-94. He has also submitted that the intermediate product carded/combed cotton/sliver are classified under Heading 52.02 and the goods falling under this heading was not specified as eligible items under Rule 57Q till 21-10-94.
Therefore, the Modvat credit taken on the capital goods which were procured prior to 21-10-94 is not admissible.
5. Heard Shri Ranganathan, learned Counsel for M/s. Sudarsanam Spinning Mills & M/s. Sri Vishnu Sankar Mills Ltd., Shri N. Venkataraman, learned Counsel for M/s. Kandagiri Spinning Mills, M/s. Sree Rajendra Mills Ltd & Sambandar Spinning Mills, Shri Balagopal, learned Counsel for M/s. Pongalur Pioneer Textiles Mills, Shri Suresh, learned Counsel for Shri Skanda Spinners and Shri Mohd. Shafi, learned Counsel for M/s.
Kaveri Yarns and Fabrics Ltd. 6. Shri S. Ranganathan, learned Counsel submitted that the order passed by the lower appellate authority against which the Revenue has come in appeal, is a well reasoned order and needs to be sustained. He has also invited our attention to the following judgment:Ballarpur Industries Ltd. v. CCE, Belgaum reported in 2000 (116) E.L.T. 312 (Larger Bench) wherein it was held that Clause (c) under Explanation to Rule 57A introduced in 1994 covering "inputs used as is an inclusive definition of the expression 'input'. - The fact that Clause (d) covering 'inputs used as fuel for generation of electricity' under explanation to Rule 57A was introduced with effect from 16-3-1995 cannot automatically lead to the conclusion that prior to that date input used for generation of electricity will not be entitled to Modvat credit.CCE v. Mettur Spinning Mills reported in 2001 (135) E.L.T. 678 wherein it was held that no duty is leviable on Intermediate product namely carded/combed cotton arising during manufacture polyester/cotton blended yarn.
(c) Modern Woollens Ltd. v. CCE reported in 1998 (99) E.L.T. 411 wherein it was held that since carded gilled slivers wholly of wool emerging at Intermediate stage during the manufacture of woollen yarn is incapable of being marketed, it is not goods, despite its mention in the Tariff Item No. 43 of the Erstwhile CETA. (d) Modi Crafts Limited v. UOI reported in 1997 (91) E.L.T. 285 (Del.) wherein it was held that Sliver or Carded Gilled Sliver coming into existence at an intermediate stage is not marketable having no identifiable personality and no shelf life being of transient character and sliver not to be considered as goods so as to attract levy in terms of Section 2(d) of the C.E. Act, 1944. The appeal filed by the UOI against this judgment was dismissed by the Apex Court as reported in 1996 (81) E.L.T. A47 (S.C.).
7. All other Advocates referred to the respective grounds of appeal and made submissions on the lines of the submissions made by Shri S.Ranganathan, Advocate.
8. We have carefully considered the submissions made by both the sides.
The only issue that arises for our determination in all these appeals is whether Modvat credit of duty paid on the capital goods/inputs which are used for manufacture of the final product viz. cotton yarn and during the course of which intermediate product viz. Combed/Carded cotton, also known as sliver, emerges, is admissible or not. Examining this question, we observe that Rule 57R(2) envisages that credit of specified duty allowed in respect of any capital goods shall not be denied or varied on the ground that any 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 duty of excise leviable thereon or chargeable to nil rate of duty, provided that such intermediate products are specified as final products in Annexure to Rule 57Q. The objection of the Revenue is that Carded/combed cotton/sliver are classified under Heading 52.02 with effect from 21-10-94 vide Notification No. 60/94 and since the capital goods were received in the factory prior to 21-10-94, the assessee is not entitled to the benefit. We find that in similar circumstances, the Larger Bench in the case of Ballarpur Industries Ltd. (supra) has held that the fact that Clause (d) covering 'inputs used as fuel for generation of electricity' under explanation to Rule 57 A was introduced with effect from 16-3-1995 cannot automatically lead to the conclusion that prior to that date input used for generation of electricity will not be entitled to Modvat credit. Rule 57R(2) makes it clear that intermediate products have come into existence, cannot be a reason to vary or deny benefit of Modvat credit on the capital goods, provided the final product is dutiable. In the instant case admittedly the final products viz. cotton yarn is chargeable to duty. In the background of the fact that intermediate products did emerge and emergence of such intermediate product cannot vary or deny the benefit of credit in respect of the capital goods, as provided for under Rule 57R(2), just because such intermediate products have been included on a later date, cannot lead to a conclusion that prior to the date of inclusion, the benefit of credit cannot be given.
So far as the marketability of the intermediate product in question is concerned, it is now well settled that the goods in question are not marketable. Further, the Central Board of Excise & Customs have also issued clarification vide Circular No. 665/56/2002-CX., dated 25-9-2002 to the effect Modvat credit cannot be denied on capital goods used in intermediate products exempt from duty under the new set of rules.
Paras 2 & 3 of the said circular are extracted hereunder : "2. The matter has been examined by the Board. It is observed that although there is no provision in the existing Cenvat Credit Rules, 2002 corresponding to erstwhile Rule 57R(2), the new rules have no provisions barring the credit on capital goods used in the manufacture of exempt intermediate product. Simultaneously the use of these capital goods in the overall manufacturing process of finished dutiable goods is not in dispute.
3. It is therefore, clarified that Cenvat credit should not be denied on the capital goods used in manufacturing of intermediate product exempt from payment of duty which are used captively in the manufacture of finished goods chargeable to duty." 9. In view of our above discussion, we are of the considered opinion that Modvat credit of duty paid on the capital goods/inputs used by the assessees cannot be denied. We, therefore, uphold the impugned Orders-in-Appeal No. 23 & 24/99(MDU), dated 5-1-1999 and No. 106/2002 (CBE) (GVN), dated 30-4-2002 and dismiss the Revenue appeals and set aside the rest of the orders-in-Appeal.
10. In the result, all the three appeals filed by the Revenue are dismissed and the six appeals filed by the assessees are allowed with consequential relief, if any.