2005 (6) TMI 12 - AT - Central Excise

Cenvat/Modvat Obsolete Capital goods on which Credit taken - capital goods become obsolete due to passage of time

Summary

Issues Involved:
Appeal against demand confirmation, denial of Modvat credit for obsolete capital goods, imposition of penalty under Section 11AC of the Central Excise Act.

Analysis:
The appellant filed an appeal against the order-in-appeal confirming a demand of Rs.34,694 and denying Modvat credit for capital goods treated as 'obsolete.' The appellant contended that the credit was rightfully taken upon receipt in the factory, even though the goods were later deemed obsolete for accounting purposes due to the passage of time. The Revenue argued that since the capital goods were never used and treated as obsolete in their records, the denial of credit was justified as there was no intention to use these goods in the future.

The Tribunal found that the capital goods in question, for which credit was taken, were indeed treated as obsolete by the appellant and not utilized in the manufacturing process of the final product. Consequently, the denial of credit on such obsolete capital goods was upheld. However, considering the circumstances where the goods became obsolete over time, the penalty imposed on the appellant under Section 11AC was deemed unsustainable and set aside. The appeal was disposed of accordingly.

This judgment highlights the importance of the actual use of capital goods in claiming credit under the Central Excise Act. It distinguishes between goods that are genuinely obsolete and those with the potential for future use. The decision emphasizes that while credit may be denied for obsolete goods, penalties should be imposed judiciously, taking into account the specific circumstances of each case.