Moheb Ali M., Member (T)

1. The appellants took capital goods credit under Rule 57Q on injection Moulding Machine, and used it to produce Plastic Razor Blade handles which they cleared without payment of duty to an another unit of their own who manufactured Shaving Systems. The second unit cleared the final product on payment of duty. The contention of the Department is that the appellants are not entitled to capital goods credit as if manufactured goods on which no duty was paid. Larger period of limitation is also invoked to demand the credit so taken on the ground that the appellants suppressed the fact that he was making only duty free goods using the Injection Moulding Machine on which capital goods credit was taken. The Commissioner confirmed the decision of the lower authority. Hence the appeal.

2. Heard both sides.

3. On merits, it was argued that the appellants did not make only duty free goods with the machine in question; that credit can be denied if the machine manufactured only duty free final products; that the razor handles are intermediate goods and that the final products in shaving systems which are dutiable; that credit can not be denied if intermediate goods are cleared at nil rate of duty; that the larger period can not be invoked as the appellant had taken credit after filing a declaration under Rule 57T and that the Department was aware of the fact that the injection moulding machine was being used only to manufacture razor blade handles, and in any case the appellant was entitled to credit on the capital goods as the final products (Shaving System) were cleared on payment of duty. The Ld. Advocate for the appellants relied on the decision of the Apex Court in the case of Escorts Ltd. (: 2004(171) ELT 145 SC) wherein the court interpreted the expression final product as the one that comes out of the factory and not the individual parts. The scheme of MODVAT credit on capital goods is made to prevent cascading effect.

4. The Revenues contention is that the razor handles that are manufactured is Plant-III of the appellants themselves were final products and since no attract Central Excise duty was paid on them Modvat credit on the capital goods is not admissible.

5. The question revolves round a narrow compass. The appellant has two plants. In one they manufacture razor handles and in the other Shaving Systems. The razor handles cleared under Rule 57F(4) in Plant III are used in Plat 1 in the manufacture of shaving systems, which are cleared on payment of duty. The Apex Court while interpreting Notification No. 217/86CE held that the final products i.e. Tractors are dutiable and therefore the benefit of MODVAT credit cannot be denied. Simply because the intermediate goods did not suffer duty. The ratio of this decision applies to the facts of the present goods. Once we agree that razor handles are intermediate goods and the shaving systems are the final goods, MODVAT credit taken on the capital goods used in the manufacture of intermediate goods (Razor handles) can not be denied. The bar contemplated in Rule 57C of the scheme does not come into play.

6 The appeal is allowed. The appellant is entitled to capital goods credit under Rule 57Q on the injection moulding machine.

(Operative part pronounced in court)