2009 (4) TMI 526 - HC - Central Excise

Whether the CESTAT is correct in allowing Modvat credit of duty paid on capital goods/spares namely carding and combing machines producing final products namely Sliver/combed/carded cotton falling under Ch. 52.02 are eligible capital goods, when this heading remained specifically excluded from the purview of capital goods under erstwhile Rule 57Q as it stood during the material time, by overriding the legal provisions Held that - Because of the very nature of the Sliver, it s non-cohesive and brittle property, Sliver obtained in the Petitioner s factory as described cannot be brought and sold in the market and is not a commodity which is known in the trade, decision against the revenue and the civil miscellaneous appeal is dismissed Modi Carpets Limited (1994 - TMI - 44497 - HIGH COURT OF JUDICATURE AT DELHI)

Summary

Issues:
Whether CESTAT correctly allowed Modvat credit for duty paid on capital goods/spares producing final products under Chapter 52.02 as eligible capital goods, despite the exclusion of this heading under erstwhile Rule 57Q.

Analysis:
In this civil miscellaneous appeal, the main issue revolved around the eligibility of Modvat credit for duty paid on capital goods/spares producing final products under Chapter 52.02. The appellant argued that carding and combing machinery, used in manufacturing cotton falling under this chapter, were not considered capital goods during the relevant period due to their exclusion under Rule 57Q. However, the authorities found that the processed cotton at an intermediate stage, such as "Sliver," did not have an independent existence and was not marketable. They concluded that MODVAT credit could not be denied based on Circular No. 665/56/2002-CX, which emphasized not denying credit for capital goods used in manufacturing intermediate products exempt from duty but used in finished goods chargeable to duty.

The judgment referred to a case before the Delhi High Court, where it was established that "Sliver" obtained during manufacturing processes could not be brought and sold in the market, thus lacking marketability as a distinct commodity. The Supreme Court also emphasized the necessity of marketability for a product to be considered dutiable under the Central Excise Tariff Act. Furthermore, the nature of "Sliver" was described in detail, highlighting its brittleness and unsuitability for spinning if mishandled, making it unfit for sale in the market.

Moreover, the judgment cited previous decisions emphasizing the importance of marketability for a product to be classified as "goods" under excise law. Both the Delhi High Court and Bombay High Court provided detailed descriptions of the nature of "Sliver," emphasizing its fragile and non-cohesive properties, rendering it unsuitable for sale in the market. Based on these considerations, the substantial question of law was answered against the revenue, leading to the dismissal of the civil miscellaneous appeal.