2003 (9) TMI 599 - AT - Central Excise

Issues Involved:
1. Admissibility of Modvat credit on components of a power plant under Rule 57Q of the Central Excise Rules, 1944.
2. Compliance with the declaration filing requirements under Rule 57T(1) of the Central Excise Rules, 1944.
3. Interpretation of Rule 57R(2) regarding intermediate products and final products.

Detailed Analysis:

1. Admissibility of Modvat Credit on Components of a Power Plant:
The primary issue in this appeal is whether Modvat credit of the duty paid on components of a power plant is admissible under Rule 57Q of the Central Excise Rules, 1944. The appellants, M/s. Grasim Industries Limited, argued that their power plant components should be considered as capital goods since the electricity generated is essential for manufacturing their final products, such as caustic soda lye. They relied on various Tribunal decisions, including Ballarpur Industries Limited v. CCE and Eveready Industries (I) Ltd. v. CCE, which extended the benefit of capital goods credit to components of D.G. Sets even prior to 16-3-1995. The Tribunal accepted this argument, noting that the definition of "capital goods" is broad and includes machines, machinery, plant, equipment, apparatus, tools, or appliances used for producing or processing goods or bringing about any change in any substance for the manufacture of final products. Therefore, the components of the power plant qualify as capital goods, and the Modvat credit is admissible.

2. Compliance with Declaration Filing Requirements:
The appellants initially filed a general declaration on 1-3-94 and later filed more specific declarations on 29-10-1994 and 25-4-95. The Commissioner had disallowed the credit on the grounds of delayed filing of these declarations. However, the Tribunal referenced the amendment in Rule 57(T) by Notification No. 7/99-C.E. (N.T.), dated 9-2-99, which allowed credit despite minor procedural lapses if the Assistant Commissioner was satisfied that the duty had been paid and the capital goods were used in manufacturing final products. The Tribunal cited the Larger Bench decision in Kamakhya Steels Limited v. CCE, which supported the view that credit cannot be denied due to delayed filing if substantive compliance is met. Consequently, the Tribunal ruled that the Modvat credit could not be denied on the grounds of late declaration filing.

3. Interpretation of Rule 57R(2):
The respondent argued that Rule 57R(2) bars the credit of duty paid on components of a power plant because electricity, the intermediate product, is not specified as a final product in the Annexure to Rule 57R. They contended that the second proviso added on 16-3-95, which allowed credit for capital goods used for electricity generation, could not be applied retrospectively. The Tribunal, however, found that the components used to assemble the power plant, which in turn generates electricity for manufacturing final products, qualify as capital goods under Explanation 1(a) to Rule 57Q. The Tribunal referenced the Supreme Court's judgment in CCE v. Jawahar Mills Ltd., which held that capital goods used for producing or processing goods or bringing about any change in any substance for the manufacture of final products are eligible for Modvat credit. Thus, the Tribunal ruled that the bar of sub-rule (2) of Rule 57R does not apply, and the components of the power plant are eligible for Modvat credit.

Conclusion:
The Tribunal allowed the appeal, setting aside the impugned order. It concluded that the components of the power plant qualify as capital goods under Rule 57Q, and the Modvat credit is admissible despite the delayed filing of declarations, as long as substantive compliance with the Modvat Procedure is met. The Tribunal also clarified that the bar under Rule 57R(2) does not apply to the components used to assemble the power plant, as these are used for producing or processing the final products.

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