2015 (2) TMI 1178 - HC - Central Excise

Modvat credit - Rule 57A and 57B of Rules, 1944 - Welding electrodes - used for the maintenance and repair of machinery in the factory wherein the appellants are engaged in the manufacture of V.P. Sugar and Molasses - period involved is October 1999 to March 2000 and January 2002 to March 2002 - Held that - under Rules 57A and 57B, there is no term within which Welding Electrodes , as such, may fall. Under Rule 57B(1)(iv), MODVAT credit has been allowed to inputs used for manufacture of final products or for any other purpose within the factory of production. Similarly, Rule 57B(1)(vi) allowed MODVAT credit on accessories on final products cleared alongwith such final products, value of which is included in the assessable value of final products but appellant could not explain as to how Welding Electrodes can be said to be used for manufacture of final products or accessories of final products, so as to bring within aforesaid provisions. Therefore, for the period of October 1999 to March 2000, Welding Electrodes would not come within the category inputs so as to qualify for MODVAT credit under Rule 57A read with Rule 57B of Rules, 1944. Since there is change in provisions, therefore, for the subsequent period, having examined the terms capital goods and input in the subsequent Rules and comparing with the Rules 57A, 57B and 57Q of earlier Rule, for the purpose of present case, we do not find any substantial difference which may help the appellant so as to include welding electrode within either of the aforesaid terms for claiming MODVAT/CENVAT Credit on the use of welding electrodes in an industrial unit engaged in production of sugar and molasses. - Decided against the assessee

Summary

Issues Involved:

1. Whether the authorities were justified in disallowing Modvat Credit on welding electrodes used for the maintenance and repair of the machinery in the factory.
2. Whether 'welding electrodes' can be treated as eligible 'inputs' under Rule 57A/B or 'capital goods' under Rule 57Q, to claim MODVAT credit.

Detailed Analysis:

1. Justification in Disallowing Modvat Credit on Welding Electrodes:

The appellant, engaged in manufacturing V.P. Sugar and Molasses, claimed MODVAT/CENVAT Credit for welding electrodes used in machinery maintenance. The authorities disallowed this claim, prompting the appellant to challenge the decision. The core issue was whether welding electrodes used for maintenance and repair could be considered as 'inputs' or 'capital goods' eligible for MODVAT credit under the Central Excise Rules.

2. Eligibility of Welding Electrodes as 'Inputs' or 'Capital Goods':

Period of October 1999 to March 2000:

The appellant argued that welding electrodes, used for machinery repair, should qualify as 'inputs' under Rule 57A/B of the Central Excise Rules, 1944. However, the court found that welding electrodes are not integral to the manufacturing process of sugar and molasses. They are used solely for machinery maintenance and not directly in the production process. The court noted that the term 'input' refers to goods used directly or indirectly in the manufacture of final products. Since welding electrodes are used only when maintenance is required, they do not qualify as 'inputs' under Rule 57A/B. The court also rejected the argument that repair and maintenance are integral to the manufacturing process, as this would extend the definition of 'inputs' too broadly.

Period of January 2002 to March 2002:

For the subsequent period, the court examined the applicability of the CENVAT Credit Rules, 2001 and 2002, which replaced the earlier MODVAT rules. The definitions of 'capital goods' and 'inputs' under these rules were scrutinized. The court found no substantial difference in the definitions that would favor the appellant's claim. Welding electrodes, classified under Tariff head 83.11, are used for repair and maintenance, not directly in manufacturing. Thus, they do not qualify as 'capital goods' or 'inputs' for claiming CENVAT credit.

Conclusion:

The court concluded that welding electrodes do not qualify as 'inputs' under Rule 57A/B or as 'capital goods' under Rule 57Q of the Central Excise Rules, 1944, or under the CENVAT Credit Rules, 2001 and 2002. The substantial questions of law were answered against the appellant and in favor of the Revenue. Consequently, the appeals were dismissed.