Judgment:
1. These two appeals are against the O-I-As No. 37/2003-C.E. & 38/2003-C.E., dated 31-3-2003 passed by the Commissioner of Customs & Central Excise (Appeals), Cochin. The appellants who manufacture tread rubber were availing the benefit of notification 5/99 dated 28-2-1999.
They opted out of Modvat Scheme with effect from 1-4-2000 as per Notification No. 8/2000. They had reversed the Modvat credit attributable to the inputs lying in stock, inputs contained in finished/semi-finished goods in accordance with Rule 57AG of Central Excise Rules. The revenue proceeded against them on the ground that they had not reversed the Modvat credit attributable to the inputs contained in the waste. The original adjudicating authority held that the appellants were not required to reverse the Modvat credit contained in the waste. His reasoning is as follows: "From the records of the above case, I observe that during the financial year 99-00 the assessee was paying duty at the concessional rate as stipulated under Notification No. 5/99, dated 28-2-1999 and were availing of modvat credit of duty paid on inputs.
For the financial year 2000-01 they opted for the scheme of exemption under Notification No. 8/2000 dated 1-3-2000. While switching over to the new scheme w.e.f. 1-4-2000 they had reversed the modvat credit of duty attributable to the inputs, finished goods and semi-finished goods lying in stock as stipulated in the transitional provisions. Rule 57D of Central Excise Rules which was in force up to 31-3-2000 provided that the credit of duty contained in any waste arising in the course of manufacture of final products shall not be denied or varied. I observe that the waste lying in stock as on 1-4-2000 had arisen while rule 57D was in force, and hence the argument of the assessee in this regard has much force. I also observe that Section 38A of Central Excise Act stipulates that where any rule is amended or superseded such amendment or suppression shall not affect the previous operation of the rule amended/superseded or anything duly done or suffered thereunder. In view of the above provisions I hold that the demand raised in the Show Cause Notice No. 1/01, dated 29-3-2001 issued by Range Officer, Ettumanoor Range is not sustainable." In view of the above reasoning, the Original Authority dropped the proceedings against both the appellants. Aggrieved over the decision of the Original Authority, the revenue took up the matter with the Commissioner (Appeals). The Commissioner (Appeals) set aside the Orders of the Original Authority. The reasoning of the Commissioner (Appeals) is as follows: "I have carefully examined the case records and the rivals submissions made. As per the records, vulcanized waste was cleared on payment of duty till 31-3-2000 under heading No 44.04. No reversal of modvat also was involved till then. Once the respondent opt out of modvat with effect from 1-4-2000 to avail Notification No. 8/2000, they are to reverse the credit on the finished goods lying in stock, inputs etc. In the instant case by their own action and conduct, the respondents themselves have accepted the dutiability of the vulcanized waste till 31-3-2000. Admittedly they were clearing the same on payment of duty and thus the applicability of rule 57D for the eligibility of modvat also did not arise. Hence just because they have opted out of modvat scheme to avail Notification No. 8/2000 with effect from 1-4-2000, the dutiability of product vulcanized waste cannot be sought to reopened. The findings of the lower authority that the vulcanized waste had arisen when rule 57D was in force till 31-3-2000 also cannot be sustained." 2. Aggrieved with the decision of the Commissioner (Appeals), the appellants have come before this Tribunal.
3. Shri Joseph Kodianthara learned advocate appeared for the appellants and Shri R.V. Ramakrishnappa learned JDR appeared for the revenue.
4. The learned Advocate urged that the appellants were not required to reverse the credit attributable to the inputs contained in the waste after switching over to Notification No. 8/2000 because as per Rule 57AG, they were required to reverse only the credit attributable to inputs contained in finished excisable goods and also in respect of inputs lying in stock. Further our attention was drawn to the provision of Rule 57D which was in existence till 31-3-2000. According to Rule 57D, credit allowed in respect of any inputs shall not be denied or varied on the ground that part of the inputs is contained in any waste, refuse or by-products arising during the manufacture of the final products. Further, he relied on the decision of CEGAT in Darshan Agro Oils Ltd. v. CCE, Lucknow [2000 (125) E.L.T. 1249 (Tri.)] wherein it is held that credit taken under Rules 57A and 57Q of the Central Excise Rules shall not be liable to be reversed in respect of scrap lying in stock as waste and scrap arising in the case of manufacture of metal containers when assessee opts for exemption under Notification 7/97.
Learned SDR reiterated the points in the Order of the Commissioner (Appeals).
5. We have gone through the rival submissions carefully. Rule 57D was in force till 31-3-2000. Modvat credit taken on the inputs could not be denied or varied on the ground that some part of the input is contained in the waste irrespective of the fact whether the waste is dutiable or not. When the appellant opted out of the Modvat scheme, they were required only to reverse the credit on the inputs lying in stock and also on the inputs contained in the finished goods. The waste product cannot be considered as finished goods. Hence under Rule 57AG they were not required to reverse the credit on inputs contained in the waste.
The decision of the Original Authority is correct. This view is confirmed by the decision of the CEGAT in the Darshan Agro Oils Ltd. quoted by the learned Advocate. Under these circumstances, the orders of the Commissioner (Appeals) have no substance. Hence we allow the appeal with consequential relief.