2001 (12) TMI 745 - AT - Central Excise

Summary

Issues involved:
1. Interpretation of Section 35K of the Central Excise Act.
2. Eligibility for Modvat credit on a diesel engine used as part of a generating set.
3. Application of Rule 57Q of the Central Excise Rules.
4. Correctness of the Tribunal's decision regarding Modvat credit eligibility.

Detailed Analysis:
1. The judgment concerns the final orders passed under Section 35K of the Central Excise Act following a Reference case decided by the Hon'ble High Court of Madras. The High Court upheld the Tribunal's finding that a diesel engine, as part of a generating set, is eligible for Modvat credit, but disagreed with the Tribunal's reliance on Rule 57S of the Rules.

2. The dispute arose when the Assistant Commissioner disallowed Modvat credit on a diesel engine purchased by the assessee for use in generating electricity in the factory. The Commissioner, on appeal, reversed this decision, emphasizing the essential role of the diesel engine in the manufacturing process, leading to the Tribunal affirming the Commissioner's order pending further investigation into the integrality of the manufacturing process.

3. The Tribunal's decision was based on the Supreme Court's ruling in Collector of Central Excise v. Rajasthan State of Chemicals Works, emphasizing the importance of the diesel engine in the manufacturing process. The Revenue argued that the diesel engine did not fall under the prior clauses of Rule 57Q's explanation and questioned the relevance of subsequent amendments to the rule.

4. The Tribunal's conclusion that the diesel engine qualifies for Modvat credit under Clause (a) of the Explanation to Rule 57Q was upheld by the High Court. The High Court found the denial of Modvat credit solely based on the partial purchase of the generating set to be untenable, asserting that the benefit extends to the whole, including its parts. The High Court set aside the Tribunal's direction for further inquiry into the integrality of the processes, deeming it unnecessary.

5. Ultimately, the High Court answered the referred question by affirming the Tribunal's decision on Modvat credit eligibility for the diesel engine as part of the generating set but disagreed with the reliance on Rule 57S. Consequently, the order granting Modvat credit to the assessee was upheld, and the final order was passed in accordance with Section 35K of the Central Excise Act, affirming the assessee's entitlement to the credit.