2012 (9) TMI 672 - HC - Central Excise

Cenvat Credit on capital goods - stored at administrative office before shifting to manufacturing premises - Held that - Since the construction of the factory was not completed, the appellant could not shift the goods within the factory premises but stored it at a place 15 k.m. away in its Administrative office. As soon as construction was about to-be over, under intimation to the Department, on or around 1-5-97, such machinery was shifted, in such a case can it be stated that the goods were not received in the factory? Department was not justified in denying 100% credit on the additional duty paid by the appellant on such capital goods merely on the ground that physically such goods were not shifted to the factory before 1-3-97 - in favour of assessee

Summary

Issues:
Interpretation of Rule 57Q of the Central Excise Rules regarding the entitlement to credit on duty paid for capital goods received in a factory before a specific date.

Detailed Analysis:

Issue 1: Interpretation of Rule 57Q
The case involved a dispute between the appellant, a manufacturer of paper products, and the Department regarding the entitlement to credit on additional duty paid on capital goods imported before 1-3-97. The Department contended that the appellant was entitled to only 75% credit as per sub-rule (3) of Rule 57Q, which was introduced on 1-3-97. The Tribunal held in favor of the Department, stating that credit on capital goods is related to production in the factory and is granted upon receipt of goods in the factory, not just upon purchase or import. The appellant argued that there was no requirement in Rule 57Q that goods must be received in the factory.

Issue 2: Statutory Provisions of Rule 57Q
Rule 57Q under Chapter AAAA pertains to the applicability of the chapter to specified final products. Sub-rules (2) and (3) of Rule 57Q outline the credit entitlement on duty paid for capital goods. Sub-rule (3) limits the credit to 75% of the duty paid on such goods if received in the factory before 1-3-97. The critical date for credit entitlement was deemed to be 1-3-97, after which the entitlement was reduced to 75%. Sub-rule (5) clarifies that goods received in the factory before 1-3-97 would not be governed by Chapter AAAA.

Issue 3: Interpretation of Rules and Application
The Court analyzed sub-rules (3) and (5) of Rule 57Q together and emphasized the importance of goods being received in the factory as of 1-3-97. It was concluded that the appellant, who had imported capital goods before 1-3-97 and stored them in an administrative office due to incomplete factory construction, was entitled to full credit if the goods were shifted to the factory before 1-3-97. The Court disagreed with the Department's denial of 100% credit based solely on the physical location of the goods before the specified date.

Conclusion:
The Court ruled in favor of the appellant, reversing the Tribunal's decision and allowing both appeals to the extent that the appellant was entitled to 100% credit on the additional duty paid for capital goods imported before 1-3-97. The judgment highlighted the practical considerations and peculiar facts of the case in interpreting and applying Rule 57Q of the Central Excise Rules.