Commissioner of Central Excise Vs. Sterling Rubber Products Ltd. - Court Judgment

Excerpt:
1. the revenue has filed this appeal against the order-in-appeal no.385/2002 dated 30,4.2000/8.5.2002 in which the commissioner (appeals) has allowed the modvat credit in respect of rejected duty paid final products received back by respondents namely m/s. sterling rubber products. when the matter was called, none was present on behalf of the respondents nor there was any request for adjournment of the hearing in spite of the notice. i also observe that when the matter was posted for hearing earlier on 11.9.2002, no one has appeared on behalf of the respondents, i, therefore, take up the appeal for hearing after perusing the records and hearing shri h.c. verma, learned departmental representative.2. in this case, the respondents manufacture "bromo butyl rubber stopper" and "latex rubber plugs" classifiable under sub-heading 4014.90 of the schedule to the central excise tariff act. scrutiny of rt 12 returns revealed that they had taken the modvat credit on the said goods which were cleared by them to m/s. aristo pharmaceuticals ltd. which in turn had returned the same under provisions of rule 57 f(2), the deputy commissioner under adjudication order no. 103/98 dated 20.6.98 disallowed the modvat credit and imposed equivalent amount of penalty holding that the final products itself cannot be termed as inputs in the manufacture of same final products specially when the final products is rubber product and remanufacturing is impossible.however, on appeal the commissioner (appeals) allowed the appeal of the respondents relying upon the tribunal's decision in a number of cases including the decision in the case of a bhansali polymers ltd. v. cce, bhopal, 2001 (130) elt 676 (tri). the learned departmental representative has emphasized that the rejected goods received back are not subjected to manufacture and, therefore, cannot be treated as inputs under rule 57a of the central excise rules. reliance has also been placed on the decision in the case of cce v. m/s. sigma paints ltd. 1994 (69) elt 779 (tri.) wherein it has been held that where the returned goods are not subjected to a process amounting to manufacture, no modvat credit would be available. reliance has also been placed on the decision in the case of jva printing inks ltd. v. cce, 2001 (132) elt 387 (tri.).3. modvat credit of the duty paid on inputs is available subject to the provisions of rule 57 a of the central excise rules, 1944 which provides that the inputs should be used in or in relation to the manufacture of final products. i observe that the respondents had neither filed any reply to the show cause notice issued by the department nor appeared for personal hearing and, therefore, nothing is available on records as to how the products received back had been used by them for availing the modvat credit. it is the first requirement that the inputs must be used in or in relation to the manufacture of final products. in absence of any material on record, no decision can be arrived at as to whether the returned goods can be used in or in relation to the manufacture of final products. this point has also not been considered by the commissioner (appeals) in the impugned order. i, therefore, set aside the impugned order and remand the matter to the adjudicating authority to give a specific finding as to whether the returned goods which have been treated as inputs by respondents have been used in or in relation to the manufacture of final product and thereafter readjudicate the matter in accordance with the law.

Judgment:
1. The Revenue has filed this appeal against the Order-in-Appeal No.385/2002 dated 30,4.2000/8.5.2002 in which the Commissioner (Appeals) has allowed the modvat credit in respect of rejected duty paid final products received back by respondents namely M/s. Sterling Rubber Products. When the matter was called, none was present on behalf of the respondents nor there was any request for adjournment of the hearing in spite of the notice. I also observe that when the matter was posted for hearing earlier on 11.9.2002, no one has appeared on behalf of the respondents, I, therefore, take up the appeal for hearing after perusing the records and hearing Shri H.C. Verma, learned Departmental Representative.

2. In this case, the respondents manufacture "Bromo Butyl Rubber Stopper" and "Latex Rubber plugs" classifiable under sub-heading 4014.90 of the Schedule to the Central Excise Tariff Act. Scrutiny of RT 12 returns revealed that they had taken the modvat credit on the said goods which were cleared by them to M/s. Aristo Pharmaceuticals Ltd. which in turn had returned the same under provisions of Rule 57 F(2), The Deputy Commissioner under Adjudication Order No. 103/98 dated 20.6.98 disallowed the modvat credit and imposed equivalent amount of penalty holding that the final products itself cannot be termed as inputs in the manufacture of same final products specially when the final products is rubber product and remanufacturing is impossible.

However, on appeal the Commissioner (Appeals) allowed the appeal of the respondents relying upon the Tribunal's decision in a number of cases including the decision in the case of a Bhansali Polymers Ltd. v. CCE, Bhopal, 2001 (130) ELT 676 (Tri). The learned Departmental Representative has emphasized that the rejected goods received back are not subjected to manufacture and, therefore, cannot be treated as inputs under Rule 57A of the Central Excise Rules. Reliance has also been placed on the decision in the case of CCE v. M/s. Sigma Paints Ltd. 1994 (69) ELT 779 (Tri.) wherein it has been held that where the returned goods are not subjected to a process amounting to manufacture, no modvat credit would be available. Reliance has also been placed on the decision in the case of JVA Printing Inks Ltd. v. CCE, 2001 (132) ELT 387 (Tri.).

3. Modvat credit of the duty paid on inputs is available subject to the provisions of Rule 57 A of the Central Excise Rules, 1944 which provides that the inputs should be used in or in relation to the manufacture of final products. I observe that the respondents had neither filed any reply to the show cause notice issued by the Department nor appeared for personal hearing and, therefore, nothing is available on records as to how the products received back had been used by them for availing the modvat credit. It is the first requirement that the inputs must be used in or in relation to the manufacture of final products. In absence of any material on record, no decision can be arrived at as to whether the returned goods can be used in or in relation to the manufacture of final products. This point has also not been considered by the Commissioner (Appeals) in the impugned order. I, therefore, set aside the impugned order and remand the matter to the adjudicating authority to give a specific finding as to whether the returned goods which have been treated as inputs by respondents have been used in or in relation to the manufacture of final product and thereafter readjudicate the matter in accordance with the law.