Per Shri V.P. Gulati :

The issue in the appeal relates to utilisation of the MODVAT credit taken in respect of Caustic Soda Lye which was used as an input in the manufacturing stream of Viscose Staple Fibre (VSF). The brief facts of the case as set out in the findings portion of the Ld. Lower authority's in para-9 are reproduced as under :-

9. M/s. GIL are manufacturers of mainly VSF falling under Chapter 55 and Sodium Sulphate falling under Chapter 28 and Sodium Sulphate is their by-product which emerges during the course of manufacture of VSF. The common inputs used in the manufacture of these products are Caustic Soda Lye and Sulphuric Acid. They procure Caustic Soda Lye from other units and avail credit on the same, whereas Sulphuric Acid is manufactured by them and captively utilised claiming exemption from duty under Notification No. 217/86 dated 2.4.86 and/or 67/95 dated 16.3.95. They started availing the Modvat credit of duty paid on C.S. Lye used in the manufacture of Sodium Sulphate right from April 1986. Since their main product VSF was not specified as a final product under Notification No. 177/86, they were apportioning the Modvat credit of duty paid on C.S. Lye and were taking credit in their RG 23A part II only to the extent of quantity actually used in the manufacture of Sodium Sulphate based on the consumption ratio of C.S. Lye for the production of one M.T. of Sodium Sulphate which is 563 Kgs PMT of Sodium Sulphate given as per their letter No. CX-86-87:355 dated 5.4.86 and were using the same for payment of duty on Sodium Sulphate only. However, as per the Belgaum Collectorate's Trade Notice No. 76/90 dated 13.6.90, they started taking entire Modvat credit on Caustic Soda used in the manufacture of Sodium Sulphate and VSF in their RG 23A pt II of Sodium Sulphate and utilised the same for payment of duty on Sodium Sulphate. From 25.7.91, the Modvat scheme was extended to VSF also. The assessee started taking entire Modvat credit of duty paid on C.S. Lye used in the manufacture of Sodium Sulphate and VSF in their RG 23A part II of VSF and was being utilised towards payment of duty on VSF only. Since both VSF and Sodium Sulphate were specified as final products under Notification No. 177/86 dated 1.3.86 and/or Notification No. 5/94 (NT) dated 1.3.94 they were required to apportion the Modvat credit of duty paid on the common input C.S. Lye used in the manufacture of VSF and Sodium Sulphate and has to be taken separately in the RG 23A part II Registers of VSF and Sodium Sulphate.

2. As seen from the above, upto 25.7.91, upto which date the VSF was not notified as a specified finished product under Notification No. 177/86 issued under rule 57A of Central Excise Rule for MODVAT purposes, the appellants were availing of the benefit of the MODVAT credit in respect of Caustic Soda Lye only to the extent which was used for the manufacture of Sodium Sulphate for payment of duty on Sodium Sulphate. With effect from 25.7.91, the VSF was also notified as a final product under MODVAT scheme and the MODVAT therefore could be taken in respect of the inputs used for the manufacture of the same and utilised for payment of duty in respect of the same. The appellants w.e.f. 25.7.91, started utilising the entire MODVAT credit taken on Caustic Soda Lye for payment of duty on VSF including the portion of the credit which was attributable to the Caustic Soda Lye utilised for the manufacture of Sodium Sulphate earlier.

3. The authorities however objected to the same and were of the view that the MODVAT credit in respect of Caustic Soda Lye should have been separately apportioned for Sodium Sulphate and VSF based on the earlier apportionment, upto 25.7.91, upto which date VSF was not notified as a finished product under the MODVAT scheme vide Notification No. 177/86 as it stood. The appellants, however, against the proposed denial of the MODVAT credit for payment of duty which was attributable to the inputs apportioned to the Sodium