2013 (7) TMI 836 - HC - Central Excise

CENVAT credit on capital goods - Rule 57AA of the erstwhile Central Excise Rules, 1944 in respect of Underground Telephone Cable falling under Sub Heading No.8544.90 - Assessee are manufacturers of cement, falling under Sub Heading No.2502.29 of the Schedule to the Central Excise Tariff Act, 1985 Held that - The Apex Court in the case Commissioner of C.Ex., Coimbatore Vs. Jawahar Mills Ltd. 2001 (7) TMI 118 - SUPREME COURT OF INDIA pointed out to the definition of capital goods in Clause (c) to the Explanation to Section 57Q that the goods enumerated in clause (c) need not be used for producing the final product or used in the process of any goods for the manufacture of final product or used for bringing about any change in any substance for the manufacture of final product and the only requirement is that the same should be used in the factory of the manufacturer. Further, the items considered in the cases decided by the Apex Court reported in 2001 (7) TMI 118 - SUPREME COURT OF INDIA were power cables and capacitors in Jawahar Mills case; control panels, cables, distribution boards, switches and starters and air compressors in the case of Indian Refrigeration Co. Ltd.; electric wires and cables in the case of Kothari Sugar and Vijay Chemicals on appeals preferred by the Revenue. Thus, on a consideration of the provisions of Section 57Q, the Apex Court held that so long as the items in question are used in the factory for the manufacturer, the benefit of MODVAT credit could not be denied Relying upon the decisions in the abovementioned case, the Cenvat credit was allowed to the appellant Decided against the Revenue.

Summary

Issues:
1. Entitlement to MODVAT credit on capital goods used in the factory.
2. Interpretation of the expression "in relation to" in the context of MODVAT credit.
3. Applicability of Section 57Q of the Central Excise Rules, 1944.
4. Relevance of previous judgments on MODVAT credit eligibility.

Entitlement to MODVAT credit on capital goods used in the factory:
The case involved appeals by the Revenue regarding the denial of MODVAT credit to a cement manufacturer for availing credit on Underground Telephone Cables used for communication within the factory premises. The Revenue argued that since the cables were not connected to the manufacturing activity, the credit was irregular. The Commissioner of Central Excise (Appeals) allowed the appeal based on a previous decision, stating that as long as the goods were used within the factory, the claim was valid. The Customs Excise and Service Tax Appellate Tribunal also rejected the Revenue's appeal, confirming the eligibility of the assessee for MODVAT credit. The High Court upheld this decision, emphasizing that the cables were used in the factory and not excluded, hence entitling the assessee to the credit.

Interpretation of the expression "in relation to" in the context of MODVAT credit:
The Revenue relied on Apex Court decisions to argue that goods must be used in or in relation to the manufacture of the final product to qualify for MODVAT credit. The Court noted the wider interpretation of "in relation to" by the Apex Court, stating that goods not entering the finished products might not be eligible for credit. However, the assessee's counsel highlighted that the relevant decision applicable to the case was different, emphasizing that the goods only needed to be used within the factory of the manufacturer, as per previous judgments.

Applicability of Section 57Q of the Central Excise Rules, 1944:
The Court examined Rule 57Q of the Central Excise Rules, 1944, which applied to capital goods used in the factory of the manufacturer of final products. The Court noted the amendment of this provision in 2000 and confirmed that the assessee, using the cables in the factory for manufacturing purposes and not falling under excluded items, was entitled to CENVAT credit on the cables.

Relevance of previous judgments on MODVAT credit eligibility:
The Court referred to previous judgments, including a Supreme Court decision, to establish that as long as the items in question were used in the factory for manufacturing purposes, the benefit of MODVAT credit could not be denied. The Court rejected the Revenue's reliance on other judgments applicable to different time periods, emphasizing that the law in force during the relevant period was crucial in determining MODVAT credit eligibility. Consequently, the Court dismissed the appeals and upheld the Tribunal's order, confirming the assessee's entitlement to the credit.