2002 (12) TMI 527 - AT - Central Excise

Summary

Issues: Liability of Modvat credit on Computers

Analysis:
1. Issue: Classification of Computers as Capital Goods
The appeal revolves around the liability of Modvat credit on Computers. The appellant argued that Computers are essential for designing and drawing transformers, reducing lead time in manufacturing processes. However, the Assistant Commissioner and Commissioner (Appeals) disagreed, stating that Computers do not qualify as capital goods under Rule 57Q. The definition of capital goods under Rule 57Q includes machines, machinery, plant, equipment, apparatus, tools, or appliances used for producing or processing goods. The authorities emphasized that Computers are not directly involved in producing or processing excisable goods, nor do they bring about any change in substances for manufacturing final products.

2. Issue: Exclusion of Computers from Modvat Credit
The Commissioner (Appeals) pointed out that Computers were specifically excluded from Modvat credit eligibility under Rule 57Q from 1-3-96. Even before this exclusion, Computers were not covered under the definition of capital goods. The appellant cited a Supreme Court ruling to argue that designing should be considered part of the manufacturing process, but the Tribunal rejected this argument. The Departmental Representative highlighted that the definition of Rule 57Q specifies items used for bringing about changes in substances for manufacturing final products, and Computers did not fall under this category.

3. Judgment and Decision
After considering previous decisions and arguments, the Tribunal upheld the decision that Computers used for designing (CAD applications) do not qualify for Modvat credit under Rule 57Q. The Tribunal clarified that the eligibility under Rule 57Q is restricted to items directly involved in bringing about changes in production processes. While designing is acknowledged as part of the manufacturing process, it does not extend to all items used in or in relation to manufacturing. Therefore, the appeal was rejected, affirming that Computers used for CAD applications are not eligible for Modvat credit under Rule 57Q.

This detailed analysis of the judgment highlights the key arguments, interpretations of relevant rules, and the final decision regarding the liability of Modvat credit on Computers.