ORDER

Per T.P. Nambiar; This is an appeal filed by the appellant Collector against the Order passed by Collector (Appeals), Central Excise, Calcutta in Order No. 116/ CAL—I/90 dated 8.6.90. In terms of the impugned order he allowed the appeal filed by the above—captioned respondents and set aside the order passed by the Assistant Collector, wherein the Assistant Collector confirmed the demand of Rs. 4,97,118.88 being the Central Excise duty leviable on inputs lying in stock as on 30.9.1987.

2. The Department in the first instance issued a show cause notice to the respondents herein alleging that they had not fully accounted for the inputs lying in stock as on 30.9.87 as having been disposed of in the manner specified under Chapter VAA of the Central Excise Rules, 44. It was also stated that the respondents herein had taken credit amounting to Rs. 4,97,118.88 paid on the inputs in their RG—23A account and had utilised the credit for payment of duty on the final product viz. Aerated Water falling under Chapter Heading Nos. 22.01 and 22.02 of the Schedule to the Central Excise Tariff Act, 1985 without utilising the said inputs in the manner required under Notification No. 177/86—CE dated 1.3.86 as amended read with Rule 57A of the said Rules.

3. The case of the Department was that MODVAT Credit in respect of Aerated Water was withdrawn in terms of Notification No. 203/87—CE—dated 9.9.87 with effect from 1.10.86.lt was alleged that on scrutiny, different inputs of the respondents' factory were found to be lying in stock unutilised as on 30.9.87 (as detailed in the Annexure enclosed to the Show Cause Notice). It was also stated that the respondents herein who started availing of the MODVAT facility with effect from 1.3.87, had taken credit to the tune of Rs.4,97,118.88 equivalent to the said inputs, and completely utilised the same towards payment of duty on Aerated Water for manufacture of which such inputs were brought into the factory. Since the inputs were not utilised in the manner provided under the relevant provisions of the said Rules and since it was not possible to use them in view of the withdrawal of the MODVAT Credit on Aerated Water w.e.f. l. 10.1987, the respondents were not eligible for credit to the above—said extent.

4. The respondents filed their reply, stating interalia, that the words, 'intended to be used', indicated that the credit in respect of any input might be utilised for discharging duty liability of any final product and as per the provisions of the Rules, no correlation between the MODVAT Inputs and the final products—in the manufacture of which they were intended to be used, was necessary. The Assistant Collector held that the inputs lying stock as on 30.9.87 had not clearly been utilised i.) the manner prescribed nor were such inputs possible to be used in the subsequent period in view of the withdrawal of the MODVAT Credit with effect from 1.10.87, on Aerated Water under the MODVAT Scheme and therefore, the recovery of MODVAT Credit on inputs brought for use in the manufacture of Aerated Water, but unutilised as on 1.10.87, is liable to be reversed.

5. The respondents herein filed an appeal before the Collector of Central Excise (Appeals) who disposed of the appeal in the following terms:—

"I have carefully gone through the records of the case and duly considered all the submissions written and oral puth by and on behalf of the appellant. Admittedly credit of duty on inputs accrues as soon as inputs are received in the factory and the same can be immediately used for meeting the duty liability or he finished goods. On the date of accrual of the Modvat and its availment for meeting duty payment before 30.8.87, the appellants' ere perfectly within their right to use the same. Rule 57 A is actual patterned after Rule 56A whereby credit accrues instantly and the accrued credit can also be utilised instantly for meeting duty liability on the specified finished products. There is no provision in the modvat rul