M/S. ESCORTS LTD. versus COMMISSIONER OF CENTRAL EXCISE, DELHI

Citation: [2004] SUPP. 3 S.C.R. 885 · Decided: 25-08-2004 · Supreme Court of India · Bench: S.N. VARIAVA · Disposal: Appeal(s) allowed

Judgment (excerpt)

MIS. ESCORTS LTD. 
A 
v. 
COMMISSIONER OF CENTRAL EXCISE, DELHI 
AUGUST 25, 2004 
[S.N. VARIAVA AND G.P. MATHUR, JJ.] 
B 
Central Excise Rules, 1944: 
Rule 57C-Excise duty-Final product-Inputs used in the 
manufacture of MODVAT credit on inputs-Entitlement to-Assessee C 
manufactured tractors and paid duty on the inputs used in the manufacture 
of parts-These parts were cleared to another factory of the assessee 
without payment of duty by virtue of Notification No. 217186-CE dt . 
. 2-4-1986-These parts were used to m_anufacture tractors on which duty 
was paid-The Excise department denied MOD VAT credit on the duty paid D 
on the inputs-Validity of-Held: The final product is the tractor whereas 
the parts are intermediate products-The parts are, therefore, not final 
products-Hence, Rule 57C has no application in such cases-The mere 
fact that parts were cleared from one factory to another factory, the 
assessee would not be disentitledfrom claiming MOD VAT credit under the E 
said notification-However, in respect of parts which are sold in the open 
market and/or used for manufacture of tractors on which no duty is paid, 
the benefit of the said notification may not be available. 
The appellant-assessee was a manufacturer of tractors and paid 
duty on the inputs used in the manufacture of parts. These parts were F 
then cleared to another factory of the appellant, without payment of 
duty by virtue of Notification No. 217/86-CE dated 2-4-1986. The parts 
were then used to manufacture tractors on which duty was paid. 
The respondent issued a show-cause notice on the grcund that G 
MODV AT credit was not admissible as the final goods i.e., the parts 
were cleared without payment of duty. The appellant claimed that the 
final products were not the parts but the tractors. The appellant 
further claimed that duty was being paid on the tractor and, therefore, 
MODV AT credit was available under the said notification. The Central H 
885 
886 
SUPREME COURT REPORTS (2004] SUPP. 3 S.C.R. 
A Excise and Gold (Control) Appellate Tribunal rejected the appellant's 
claim. Hence the appeals. 
Allowing the appeals, the Court 
B 
HELD: 1. Notification No. 217/86-CE dated 2-4-1986 shows that 
c 
the inputs may be used within the factory of production or in any other 
factory of the same manufacturer. Thus merely because parts are 
cleared from one factory of the appellant to another factory does not 
make the parts the final product. [890-B; 891-GI 
2. Rule 57D(2) of the Central Excise Rules, 1944 shows that in the 
manufacture of a final product an intermediate product may also come 
into existence. Thus in cases where an intermediate product comes into 
existence, even though no duty has been paid on the intermediate 
product as it is exempted from whole of the duty or is chargeable to 
D Nil rate of duty, credit would still be allowed so long as duty is paid 
on the final product. (892-C-Dj 
3.1. In cases of manufacturers like the appellant the final product 
is the tractor. The intermediate product would be parts which are 
E manufactured for being used in the tractor. In such a case the parts 
would not be final products. Thus Rule 57C would have no application. 
The mere fact that the parts are cleared from one factory of the 
appellant to another factory of the appellant would not disentitle the 
appellant from claiming benefit of Notification No. 217/86-CE dated 
F 2-4-1986. (892-D-E) 
Collector of Central Excise v. Hindustan Sanitaryware & Industries, 
(2002) 145 ELT 3 SC, relied on. 
3.2. The appellant will be entitled to MODY AT credit on duties 
G paid for the inputs used for manufacture of parts, so long as the parts 
are used in the manufacture of tractors on which duty is paid. 
However, in respect of parts which are sold in the open market and/ 
or used for manufacture of tractors on which no duty is paid, the 
benefit of Notification No. 217/86-CE dated 2-4-1986 may not be 
H available. [893-A-B) 
ESCORTS LTD. v. C.C.E. [VARIAVA, J.] 
887 
CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 6909- A 
6912 of 2003. 
From the Judgment and Order dated 17.3.2003 of the Central Excise 
and Gold (Control) Appellate Tribunal, New Delhi in A. No. E/206, 1648-
49/95-NB and E/244/96-NB in F.O. No. Nl42-145 of 2003-NB(C). 
B 
V. Lakshmikumaran, Alok Yadav and Rajesh Kumar for the Appellant. 
T.L.V. Iyer, Sanjiv Sen, P. Parmeswaran and B. Krishna Prasad for 
the Respondent. 
C 
The Judgment of the Court was delivered by 
S.N. V AR

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