Case Note & Summary
The Commissioner of Central Excise & Custom, Thane-I, appealed against the order of the Customs Excise & Service Tax Appellate Tribunal (CESTAT) dated 9th February 2004, which allowed the appeal of M/s. Alok Enterprises (the respondent). The respondent was engaged in the manufacture of excisable goods under Chapter 28 of the Central Excise Tariff Act, 1985, and availed MODVAT credit under Rule 57A of the Central Excise Rules, 1944. The respondent filed a declaration under Rule 57G(1) on 5th June 1995, treating Hydrochloric Acid and Sulphuric Acid as inputs. The department issued three show cause notices dated 2nd February 1996, 28th February 1996, and 28th February 1996, proposing recovery of irregular MODVAT credit amounting to Rs.29,476/-, Rs.39,160/-, and Rs.41,953/- respectively for clearances during July-December 1995, and imposition of penalty under Rule 173Q. The department's ground was that the purification and filtration processes did not bring any chemical change and thus did not amount to manufacture. The respondent replied, contending that they exported the acids on payment of duty under claim of rebate under Rule 12 of the Central Excise Act, 1944, and that the purification and filtration processes were incidental or ancillary to manufacture, making the product marketable. The Assistant Commissioner, Central Excise, Dombivli Division, by order dated 20th June 1996, disallowed MODVAT credit of Rs.1,10,589/- and imposed a penalty of Rs.20,000/- under Rule 173Q. Aggrieved, the respondent appealed to the Commissioner (Appeals), who dismissed the appeal on 30th September 1999. The respondent then appealed to CESTAT, which allowed the appeal by order dated 9th February 2004. The department filed the present appeal in the High Court. The High Court framed the question of law: whether the process of purification and filtration brings out any chemical change and amounts to manufacture. The court noted that the issue was covered by the decision of the Supreme Court in Commissioner of Central Excise, Mumbai v. Fiat India Pvt. Ltd. (2004) 9 SCC 385, which held that processes incidental or ancillary to manufacture, including those that render the product marketable, fall within the definition of manufacture. The court found that the purification and filtration processes were essential for making the acids marketable for export and thus amounted to manufacture. Consequently, the High Court dismissed the appeal, upholding the CESTAT order and confirming the respondent's eligibility for MODVAT credit.
Headnote
A) Central Excise - Manufacture - Purification and Filtration - Rule 57A, Rule 57G, Rule 57I, Rule 173Q, Central Excise Rules, 1944 - The issue was whether purification and filtration of Hydrochloric Acid and Sulphuric Acid without chemical change amounts to manufacture for MODVAT credit eligibility. The Tribunal held that such processes are incidental or ancillary to manufacture and render the product marketable, thus falling within the definition of manufacture. The High Court upheld the Tribunal's order, allowing MODVAT credit. (Paras 1-6) B) Central Excise - MODVAT Credit - Inputs Used in Manufacture - Rule 57A, Central Excise Rules, 1944 - The respondent claimed MODVAT credit on inputs used for manufacturing Hydrochloric Acid and Sulphuric Acid. The department contended that purification and filtration do not bring chemical change and thus do not amount to manufacture. The court held that the processes are essential for making the product marketable and are incidental to manufacture, hence the credit is admissible. (Paras 3-6)
Issue of Consideration
Whether the process of purification and filtration done by the assessee brings out any chemical change in Hydrochloric Acid and Sulphuric Acid, and whether the same amounts to manufacture.
Final Decision
The High Court dismissed the appeal, upholding the CESTAT order dated 9th February 2004, and confirming the respondent's eligibility for MODVAT credit.
Law Points
- Purification and filtration of Hydrochloric Acid and Sulphuric Acid amounts to manufacture
- MODVAT credit eligibility
- Rule 57A
- Rule 57G
- Rule 57I
- Rule 173Q
- Central Excise Act
- 1944
