2002 (3) TMI 646 - AT - Central Excise

Summary

Issues:
1. Eligibility of safety operators for Modvat credit under Section 57Q of Central Excise Act.
2. Interpretation of Rule 57Q and Rule 57S of the C.E. Rules, 1944 regarding the eligibility of capital goods for Modvat credit.

Issue 1: Eligibility of safety operators for Modvat credit under Section 57Q of Central Excise Act:
The case involved M/s. Kothari Sugars & Chemicals Ltd., manufacturers of excisable goods, who filed a declaration for availing credit of duty paid on "Safety Barriers" under Rule 57Q of C.E. Rules, 1944. The Assistant Commissioner disallowed the credit, stating that the Distribution Control System (DCS), of which the "Safety Barrier" is a component, was not used in the production process of the final product, thus making it ineligible for credit. Additionally, the capitalization of goods for depreciation under Section 32 of the Income-tax Act was seen as a contravention of Rule 57R(5) of the C.E. Rules, 1944.

Issue 2: Interpretation of Rule 57Q and Rule 57S regarding eligibility of capital goods for Modvat credit:
The Commissioner Appeals, Trichy allowed the appeal of the assessee, relying on a previous Tribunal Order and interpreting Rule 57Q along with Rule 57S. The Commissioner held that capital goods used in the factory "in or in relation to" the manufacturing process of the final product would be eligible for Modvat credit. The explanation under Rule 57Q defines capital goods as machinery, apparatus, tools, etc., used for production or processing of goods. The Commissioner emphasized that even though the words "in or in relation to" are not explicitly mentioned in Rule 57Q, they should be considered as such through a harmonious reading of Rules 57Q and 57S. The Tribunal dismissed the Department's appeal, upholding the interpretation that essential items used in different manufacturing operations for final products qualify as being used "in or in relation to" the manufacturing process, thus extending Modvat credit as capital goods under Rule 57Q.

In compliance with the direction of the Hon'ble High Court of Madras, the Tribunal prepared a statement of the case for further opinion. The case was submitted to the High Court for necessary action, with copies sent as directed.