2000 (11) TMI 1051 - AT - Central Excise

Issues Involved:
1. Eligibility of Modvat credit on capital goods used for installation of a power plant.
2. Classification of the power plant as excisable goods.
3. Applicability of penalties under Rule 173Q(1)(bb) for contravention of Central Excise Rules.

Detailed Analysis:

1. Eligibility of Modvat Credit on Capital Goods:
The central issue is whether the capital goods used for the installation of a power plant are eligible for Modvat credit under Rule 57Q of the Central Excise Rules, 1944. The Commissioner of Central Excise, Hyderabad, disallowed the Modvat credit on the grounds that the power plant is excisable under sub-heading 8502.90 of the Central Excise Tariff Act, 1985, and no appropriate Central Excise duty was paid on it. Furthermore, even if duty were paid, the resultant product, electricity, is non-excisable, thus disqualifying the capital goods from Modvat credit.

The appellants argued that their final product is paper and paperboard, not electricity, and the capital goods used for the power plant installation should be eligible for Modvat credit. They cited several case laws to support their contention, but these were dismissed by the Commissioner as they pertained to inputs and not capital goods.

2. Classification of the Power Plant as Excisable Goods:
The appellants contended that the power plant should not be considered 'goods' as it becomes immovable property upon installation. The Commissioner, however, referenced the Supreme Court judgment in M/s. Sirpur Paper Mills Limited, which held that embedding machinery in a concrete base does not make it immovable property. The Commissioner concluded that the power plant, being capable of dismantling and reinstallation, qualifies as 'goods'. Thus, the non-payment of excise duty on the power plant invalidated the Modvat credit on the capital goods used.

The appellants countered that the Commissioner's reliance on the Sirpur Paper Mills judgment was misplaced, as subsequent Supreme Court judgments in Quality Steel Tubes Pvt. Ltd. and Mittal Engineering Works Pvt. Ltd. had distinguished the earlier ruling, emphasizing that goods must exist prior to installation to be considered excisable.

3. Applicability of Penalties under Rule 173Q(1)(bb):
The Commissioner imposed a penalty of Rs. 1 crore under Rule 173Q(1)(bb) for failing to obtain registration for the manufacture of excisable goods (power plant) and for not filing the necessary declarations under Rule 173B. The appellants argued that the penalty was unjustified as the power plant was not 'goods' and thus not subject to excise duty. They also pointed out that the Commissioner did not provide a clear rationale for the penalty, making the order non-speaking and unsustainable.

Tribunal's Decision:
The Tribunal found the Commissioner's order to be non-speaking and lacking in detailed reasoning. It noted that the Commissioner failed to address key arguments and case laws cited by the appellants. The Tribunal highlighted the need for a clear finding on whether the power plant is 'goods' and whether the capital goods used for its installation qualify for Modvat credit under Rule 57Q.

The Tribunal also emphasized the need for a detailed examination of whether the items used in the power plant installation were utilized within the factory for manufacturing the final product (paper and paperboard) and whether the provisions of Rule 57Q and 57T were correctly applied.

Furthermore, the Tribunal pointed out the lack of justification for the hefty penalty imposed and the absence of a clear finding on the alleged contraventions of Rule 173Q(1)(bb).

Conclusion:
The Tribunal set aside the impugned order and remanded the matter to the original authority for de novo consideration. It directed the original authority to provide a detailed speaking order addressing all the grounds raised by the appellants and to ensure a thorough examination of the eligibility for Modvat credit, the classification of the power plant, and the justification for the penalties imposed. The appeal was allowed by way of remand.

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