2003 (6) TMI 370 - AT - Central Excise

Summary

Issues:
1. Interpretation of Modvat credit scheme on capital goods.
2. Eligibility of air-conditioners for Modvat credit.
3. Impact of Notification No. 14/96-C.E. (N.T.) on Modvat credit.

Issue 1: Interpretation of Modvat credit scheme on capital goods
The appeal was against the Order-in-Appeal allowing Modvat credit on air-conditioners for being essential for running the 3D machine under proper temperature and for quality control equipment necessary for manufacturing quality products. The Revenue argued that the definition of Modvat credit on capital goods was changed in 1996, emphasizing that the goods need only be used in the manufacture of final products, eliminating the requirement for processing or bringing about changes in the substance. The Revenue contended that the indispensability of air-conditioners in manufacturing final products was outdated, as the law since 1996 allowed credit for any specified goods used in the factory.

Issue 2: Eligibility of air-conditioners for Modvat credit
The Revenue asserted that air-conditioners used in R&D were not inputs for manufacturing final products but were for quality testing post-production. They highlighted that air-conditioning machines were specifically excluded from specified capital goods under Rule 57Q from July 23, 1996. The Revenue cited a previous judgment to support their argument that air-conditioning units received after the exclusion notification were not eligible for Modvat credit.

Issue 3: Impact of Notification No. 14/96-C.E. (N.T.) on Modvat credit
The Tribunal noted that air-conditioning appliances and machinery were excluded from specified capital goods under Rule 57Q from July 23, 1996, by Notification No. 14/96-C.E. (N.T.). Consequently, goods received after this date were not entitled to Modvat credit on such capital goods. Despite the absence of the respondent-assessee during the hearing, the Tribunal upheld the Revenue's appeal, setting aside the Order-in-Appeal that allowed Modvat credit on air-conditioning machinery and appliances. The Tribunal ruled in favor of the Revenue, disallowing the Modvat credit on air-conditioners as per the impugned order.

In conclusion, the Tribunal allowed the Revenue's appeal, emphasizing the exclusion of air-conditioning machinery from specified capital goods under Rule 57Q post-July 23, 1996. The judgment clarified the eligibility criteria for Modvat credit on capital goods and upheld the exclusion of air-conditioners from such credit based on the relevant legal provisions and notifications.