2015 (9) TMI 932 - HC - Central Excise

Denial of MODVAT Credit - Whether items namely Synthetic Filter Cloth and Asbestos Mill Board said to be not directly used in the manufacture of Aluminium and Products thereof or are used as part of plant and machinery for production of Aluminium and Products thereof, can be considered as inputs eligible for MODVAT credits under Rule 57A of the Central Excise Rules, 1944 - Held that - In order to construe the provisions relating to MODVET Credit, in Saraswati Sugar Mills Vs. Commissioner of Central Excise, Delhi 2011 (8) TMI 4 - SUPREME COURT OF INDIA , the Court considered the question, whether iron and steel structures manufactured and used captively in factory for installation of sugar manufacturing plant by Assessee can be classified as capital goods under Rule 57Q of Rules, 1944. The Court held that provisions of Statute must be construed strictly and the Court neither should stretch the words nor add nor subtract words in order to bring in or include something therein. - both the items were part and parcel of machines, plants, equipments etc., used for producing and processing of goods, hence, were excluded specifically under Rule 57A, Explanation which excludes machines, machinery, plant, equipment, apparatus, toots or appliances used for producing or processing of any goods or for bringing about any change in any substance in or in relation to the manufacture of the final products . - Assessee was not entitled to claim MODVET Credit on Synthetic Filter Cloth and Asbestos Mill Board treating the same to be inputs under Rule 57A of Rules, 1944. The Tribunal taking otherwise view has clearly erred in law. - Decided in favour of Revenue.

Summary

Issues: Whether items like Synthetic Filter Cloth and Asbestos Mill Board used in the manufacture of Aluminium can be considered as "inputs" eligible for MODVAT credits under Rule 57A of the Central Excise Rules, 1944?

Analysis:
1. Background: The case involved M/S Hindalco Industries Limited, engaged in manufacturing aluminum products, claiming MODVAT credit for Synthetic Filter Cloth and Asbestos Mill Board as inputs for their final products, which were subject to Central Excise duty.

2. Revenue's View: The Revenue argued that these items were part of plant and machinery and not eligible as "inputs" under Rule 57A, alleging that the Assessee irregularly claimed MODVAT credit amounting to Rs. 1,02,582.97 for the period of July 1989 to January 1991.

3. Collector's Decision: The Collector disallowed the MODVAT credit on these items, citing that they did not meet the criteria of being raw materials or components necessary for the final product's manufacture, as per the Explanation to Rule 57A.

4. Nature of Items: The Synthetic Filter Cloth was used for filtration in the manufacturing process, while the Asbestos Mill Board was utilized in preparing components for the production machinery, both being consumable items.

5. Legal Interpretation: Rule 57A excluded items like machines, machinery, plants, and equipment used for producing or processing goods from the definition of "inputs," which encompassed raw materials and components essential for the final product's manufacture.

6. Court's Decision: The Court upheld the Revenue's stance, emphasizing that the items in question were integral parts of machinery and equipment used in the production process, hence not qualifying as "inputs" eligible for MODVAT credits under Rule 57A.

7. Precedent: Referring to a previous case, the Court highlighted the need for strict interpretation of statutory provisions, emphasizing that items excluded under Rule 57A's Explanation should not be considered for MODVAT credits.

8. Conclusion: The Court ruled in favor of the Revenue, concluding that the Assessee was not entitled to claim MODVAT credit for Synthetic Filter Cloth and Asbestos Mill Board, as they fell under the exclusionary clause of Rule 57A. The Tribunal's contrary decision was deemed legally erroneous, settling the matter in favor of the Revenue.