2006 (3) TMI 448 - AT - Central Excise

Summary

Issues: Stay application against duty demand, Modvat credit denial, limitation period for demand.

In this case, the appellant, engaged in manufacturing polythene insulated telephone cables, applied for Modvat credit on certain items used in the manufacturing process. A show cause notice was issued disallowing the credit on specific items, leading to a penalty and interest being imposed. The Commissioner (Appeals) allowed credit on some items but denied it on others, specifically on cable test meter and testing for telecom cable. The appellant argued that the denied items fell under the definition of "capital goods" and were essential for the manufacturing process. They cited previous tribunal decisions where Modvat credit was allowed on similar testing equipment. The appellant also contended that the demand was time-barred as they had filed relevant declarations indicating the use of each item in 1995, and the actual use matched the declarations. The respondent argued that the items should have been used directly in the manufacture of finished products to qualify for Modvat credit.

Upon review, the Tribunal found that the testing equipment in question was crucial for ensuring the manufactured cables met required parameters, thus constituting an integral part of the manufacturing process and making them eligible for Modvat credit. The Tribunal noted that the Jawahar Mills case did not explicitly exclude testing equipment from qualifying for Modvat credit on capital goods. Additionally, the Tribunal highlighted previous decisions where measuring/testing equipment was deemed eligible for such credit. Regarding the limitation period, the Tribunal observed that the declarations filed by the appellant in 1995 accurately reflected the use of each item, and there was no discrepancy between the declared use and the actual use. Consequently, the Tribunal ruled in favor of the appellant on both the merit of Modvat credit eligibility and the limitation period, setting aside the Commissioner (Appeals) order.

In conclusion, the Tribunal allowed the appeal, emphasizing the eligibility of the testing equipment for Modvat credit as integral to the manufacturing process and highlighting the accurate declarations filed by the appellant to support the argument of the demand being time-barred.