1998 (9) TMI 600 - AT - Central Excise

Issues Involved:
1. Admissibility for Modvat on certain items as capital goods.
2. Taking of credit where the items installed were for operating a part of an existing factory.
3. Reversal of credit/denial of credit.

Detailed Analysis:

1. Admissibility for Modvat on Certain Items as Capital Goods:

The appellants, M/s. Simbhaoli Sugar Mills Ltd., contested the denial of Modvat credit on several items by the Commissioner of Central Excise, Meerut. The Commissioner had disallowed credit on items such as M.S. Bars/TOR steel, transformers, molasses pump, baggasse chain carrier, spares of gear box, SIJ, air drier, chain spares, spare valves, M.S. scrap, pig iron, forged key, and wheel shaft. The appellants argued that these items were essential components of their sugar manufacturing plant, thereby qualifying as capital goods under Rule 57Q of the Central Excise Rules, 1944.

The Tribunal referred to several precedents, including the Delhi High Court decision in CIT v. Pure Ice Cream Co., and the Tribunal's own decisions in Century Cements v. CCE, Raipur, and Upper Ganges Sugar & Industries Ltd. v. Collector of Central Excise, Meerut. These precedents supported the inclusion of items like transformers, panels, cables, controllers, regulators, transmitters, nickel screens, A.C. motors, stainless tubes, parts of vacuum pans, bearings, turbines, and pumps as capital goods.

However, the Tribunal upheld the Commissioner's decision that M.S. Bars/TOR steel used in the erection of cooling towers, molasses pumps, and baggasse chain carriers were not capital goods. The Tribunal also agreed that items like SIJ, M.S. scrap, pig iron, and forged keys did not qualify as capital goods.

2. Taking of Credit Where the Items Installed Were for Operating a Part of an Existing Factory:

The appellants argued that there was no bar in the Modvat scheme for utilizing credit taken on new machinery prior to its installation. They contended that Rule 57S(2) allowed the utilization of credit towards payment of duty on any of the final products manufactured in the factory, and Rule 57T did not prohibit the utilization of credit prior to the installation of the machinery.

The Tribunal examined the provisions of Rules 57S and 57T and agreed with the appellants that there was no restriction on the utilization of credit only after the installation of capital goods. The Tribunal found that the credit could be utilized for payment of duty on final products manufactured in the factory, irrespective of when the manufacture took place, provided the credit was taken on receipt of the capital goods and after informing the Range Superintendent.

3. Reversal of Credit/Denial of Credit:

The Commissioner had partly confirmed the demand for Rs. 8,06,796/- and imposed a penalty of Rs. 3 lakhs on the appellants. The Tribunal upheld the disallowance of credit on certain items but set aside the penalty imposed on the appellants. The Tribunal also agreed with the Commissioner that the exercise of canceling the debit of Rs. 40,07,308/- in their RG-23-C Part II would be an academic exercise, as the credit would be available to them on the production of sugar after the commissioning of the new machinery.

Order:

1. Credit of Rs. 28,50,540/- is allowed subject to the satisfaction of the Assistant Commissioner on production of duty-paying documents.
2. Credit of Rs. 3 lakhs is allowed subject to the satisfaction of the jurisdictional Assistant Commissioner on production of duty-paying documents.
3. Credit of Rs. 1,42,540/- is allowed subject to the satisfaction of the jurisdictional Assistant Commissioner that the goods were duty-paid.
4. Credit of Rs. 8,06,796/- is disallowed under Rule 57U.
5. Central Excise credit amounting to Rs. 40,07,308/- need not be reversed.
6. Demand of Modvat credit of Rs. 8,06,796/- out of the credit of Rs. 11,40,096/- reversed under protest is confirmed.
7. Penalty of Rs. 3 lakhs imposed on M/s. Simbhaoli Sugar Mills Ltd. is set aside.

The modification of the impugned order will be subject to the findings, particularly in relation to the admissibility of Modvat credit as capital goods on M.S. Bars, TOR steel used in the erection of cooling towers, molasses pump, forged key, SIJ, and chain spares. The credit taken on these items will have to be reversed. The two appeals are disposed of accordingly.

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