JUDGMENT

A.K. Sikri, J.

1. The Respondent herein is engaged in the manufacture of Toughened (Tempered) and Laminated Safety Glass for Automobiles falling under Chapter Heading 7004.10 and 7004.20 respectively of the First Schedule to the Central excise Tariff Act, 1985. For the manufacture of the glass of aforesaid nature, the Respondent has been supplying float glass which is the main raw material of the Respondent's product. On this the Respondent has also been availing claim of MODVAT credit of duty paid on the aforesaid raw material, Under Rule 57A of the Central Excise Rules, 1944 (hereinafter referred to as 'Rules').

2. Show cause notices dated 1.9.2002, 14.12.2000 and 29.6.2001 were issued by the Department to the Respondent alleging therein that the Respondent had availed MODVAT credit of inputs that were inherently defective and were neither used nor usable in or in relation to the manufacture of the final products'. In these show cause notices, on the aforesaid basis the Department demanded back the duty in a sum of Rs. 3,63,79,483, Rs. 2,2,57,353 and Rs. 28,53,875/- respectively. The Respondent gave reply to the said show cause notices.

3. At the same time the Respondent also approached the Settlement Commission Under Section 32E of the Act for settlement of the case in respect of the show cause notices. In the application for settlement filed by the Respondent, the Respondent made an admission to the extent that it had received the float glass in packaged form and on the opening of the wooden boxes, certain float glasses were found to be broken and they were not used as inputs while undertaking the manufacturing process. On that basis it was admitted by the Respondent that the MODVAT credit availed on the aforesaid defective float glasses had to be reversed. Accordingly, the Respondent agreed to pay back a sum of Rs. 56,39,370/-.

4. The Settlement Commission went into the issue. It found that apart from the aforesaid glasses which were found to be broken/defective on the opening of the wooden boxes, there were some other float glasses which were used in the manufacturing process. During that process, parts of the said glass were also found to be defective and not used for the final production. In the opinion of the Settlement Commission, the MODVAT credit availed by the Respondent had to be reversed/paid back by the Respondent to the authorities. In this manner, the Settlement Commission arrived at a figure of Rs. 4,03,77,695/- and directed the Respondent to pay the balance amount of Rs. 3,47,38,325/- towards the settlement of the said show cause notice.

5. It may be significant to note here that the Respondent had objected to the aforesaid approach adopted by the Settlement Commission during the hearings before the said Commission by pleading that once the float glass was used for manufacture and manufacturing process had started thereby, thereafter, if some latent defect was found on a portion of the long sheet of glass and the said portion thereof had to be discarded it was not a case where the entire sheet of glass was not used as input as remaining part of the glass was in fact used. This contention of the Respondent, however, was not accepted by the Settlement Commission resulting into passing of the orders in the manner stated above.

6. Aggrieved by the aforesaid approach of the Settlement Commission, the Respondent filed WP(C) No. 669/2002 in the High Court of Delhi, questioning the said approach as legally erroneous and challenging the order of the Settlement Commission on that ground. The High Court has accepted the plea of the Respondent herein and after straightening the legal position the case is remanded back to the Settlement Commission to consider the matter afresh in the light of the legal principle mentioned by the High Court in the impugned judgment.

7. In the instant appeal preferred by the Department against the aforesaid order, the main argument of the Department is that once the Settlement Commission