2003 (8) TMI 547 - AT - Central Excise

Modvat credit facility - whether there is a time limit for availing credit under the Modvat Scheme on capital goods and if prior permission is required for taking credit as provided under the rule - HELD THAT - The availability of modvat credit has to be determined at the time when the goods are received in the factory and if no modvat credit was available at that time, the question of subsequently making available any modvat credit would not arise. In the present case, we are concerned with a composite mill and the final product at the third phase is dutiable. According to us, decision of a learned Single Member in Kailash Auto Builders Ltd. vs. CCE (A), Bangalore 2001 (47) RLT 950 (CEGAT-Ban.) relied on by the respondent-assessee is more akin to the facts of the present case. It was held therein that there is no time limit for utilising the credit and merely because there was no dutiable items, which were required to be cleared, on payment of duty on the date when the capital goods credit was taken, that credit could not be denied. We, therefore, agree with the learned Commissioner (Appeals) that the assessee is entitled to avail the credit on the capital goods installed during implementation of second phase of the project when the composite mill had reached its third phase and where the processed grey fabrics are dutiable items. In the result, the appeal fails and it stands dismissed.

Summary

Issues involved: The issue in this case is whether there is a time limit for availing credit under the Modvat Scheme on capital goods and if prior permission is required for taking credit as provided under the rule.

Details of the Judgment:

Issue 1: Availing credit under the Modvat Scheme
The respondent-assessee set up a composite mill in phases, importing capital goods for the first phase of cotton yarn spinning, a dutiable product. Subsequently, they moved to the second phase of manufacturing non-dutiable grey fabric. The assessee intended to avail Modvat credit on capital goods during the third phase when dutiable fabric processing commenced. The Assistant Commissioner initially denied permission for credit, citing that grey fabrics were exempt from duty. However, the Commissioner (Appeals) overturned this decision, stating that the assessee was eligible for credit as the final product in the third phase was dutiable. The appellate authority clarified that there is no time limit for availing credit under the Modvat Scheme on capital goods, as per Circular No. 88/99/94-CX. The Commissioner (Appeals) emphasized that there is no provision for granting permission to take credit, only requiring the filing of declarations under Rule 57-T. The appeal was allowed, permitting the utilization of credit on capital goods acquired during the second phase after the commencement of fabric manufacturing in the third phase.

Issue 2: Comparison with Previous Tribunal Decisions
The Revenue-appellant cited a previous Tribunal decision where Modvat credit was denied due to the final product being exempt from duty at the time of capital goods acquisition. However, the Tribunal distinguished the present case as involving a composite mill with a dutiable final product in the third phase. Referring to another case, the Tribunal agreed with the Commissioner (Appeals) that there is no time limit for utilizing credit, and the absence of dutiable items at the time of capital goods credit acquisition does not warrant denial of credit. Consequently, the appeal was dismissed, affirming the assessee's entitlement to credit on capital goods installed during the second phase when the mill reached its third phase with dutiable fabric production.

In conclusion, the appeal was dismissed, upholding the decision that the assessee could avail credit on capital goods during the third phase of the project.