2003 (7) TMI 509 - AT - Central Excise

Summary

Issues:
1. Eligibility of Modvat credit for capital goods used in mines outside factory premises.
2. Entitlement of Modvat credit for cement and steel used in civil construction.
3. Classification of welding electrodes as capital goods for repairing machine parts.

Analysis:
1. The first issue pertains to the eligibility of Modvat credit for capital goods used in mines outside the factory premises. The appellants argued that the mines, being an extension of their factory, should be considered part of the factory for Modvat credit purposes. However, the Tribunal, citing the Madras Cement Ltd. case, held that capital goods used in mines outside factory premises are not eligible for Modvat credit under Rule 57Q. The Tribunal's decision was based on the Supreme Court's ruling in J.K. Udaipur Udyog Ltd., and thus, the appellants' claim was rejected.

2. Moving on to the second issue, which concerns the denial of Modvat credit for cement and steel used in civil construction within the factory premises. The appellants initially did not dispute the Revenue's denial of credit for these items and voluntarily debited the credit. Subsequently, they argued that the cement was used for erecting the foundation of plant and machinery, relying on a previous Tribunal decision. However, since they had accepted earlier that the items were used for civil construction, the Tribunal upheld the denial of Modvat credit for these items.

3. The final issue involves the classification of welding electrodes as capital goods for repairing machine parts. The Tribunal referred to the Maihar Cement case, where it was held that welding electrodes used for repairing worn-out parts qualify as capital goods for Modvat credit. Following this precedent and the decision in Modi Rubber Ltd., the Tribunal concluded that welding electrodes are eligible for Modvat credit as capital goods.

In conclusion, the Tribunal rejected the appellants' claims for Modvat credit for capital goods used in mines outside factory premises and for cement and steel used in civil construction. However, it allowed Modvat credit for welding electrodes used for repairing machine parts. Additionally, the penalty imposed on the appellants was set aside due to the bona fide nature of the dispute regarding credit eligibility.