2003 (1) TMI 591 - AT - Central Excise

Summary

Issues:
1. Interpretation of Rule 57R(8) regarding Modvat credit on capital goods
2. Claiming Modvat credit as revenue expenditure under Income-tax Law

Issue 1: Interpretation of Rule 57R(8) regarding Modvat credit on capital goods
The case involved a dispute where the Commissioner of Central Excise confirmed a demand of duty and imposed a personal penalty against the appellant, alleging a violation of Rule 57R(8) (Erstwhile Rule 57R(5)) regarding Modvat credit on capital goods. The appellant was accused of indirectly claiming Modvat credit as revenue expenditure by paying central excise duty on the final product out of the Modvat credit availed on capital goods. The appellant argued that they did not claim the Modvat credit as revenue expenditure and that the interpretation adopted by the Revenue was unjustified. The Tribunal, after careful consideration, agreed with the appellant that Rule 57R(8) only prohibits claiming the credit availed on capital goods as revenue expenditure under the Income-tax Law. The Tribunal found that once this condition was met, the appellant was entitled to the credit, and using the credit for excise duty on the final product did not amount to showing it as revenue expenditure. Consequently, the Tribunal allowed the stay petition unconditionally, siding with the appellant's interpretation of the rule.

Issue 2: Claiming Modvat credit as revenue expenditure under Income-tax Law
A Member (Technical) disagreed with the observation made by another Member (Judicial) that showing excise duty on the final product as revenue expenditure did not amount to showing the credit as revenue expenditure under Rule 57R. The dissenting Member argued that under Rule 57R, a manufacturer becomes ineligible for Modvat credit if they show the duty paid on capital goods as revenue expenditure, directly or after using the credit for paying excise duty on finished goods. The dissenting Member believed that any other interpretation would render the amendment to Rule 57R redundant, as manufacturers could use the credit for paying excise duty and then claim it as revenue expenditure for Income-tax purposes, circumventing the rule's intent. The dissenting Member emphasized that such an interpretation, which nullifies the amendment, was not warranted. Despite agreeing with the decision to allow the stay petition, the dissenting Member highlighted the potential consequences of the interpretation adopted by the majority.

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