2008 (5) TMI 87 - AT - Central Excise

Credit on capital goods i.e. Automatic Blow Moulding Machine denied on the ground that the said machine was purchased by M/s. Gujarat Containers Ltd., who installed the same in the appellant s premises to do their job work, for mfg. of carboys - admittedly such carboys has been used further in the appellant s factory in the manufacture of their final product, which stand cleared on payment of duty, hence credit cannot be denied on ground that it was used in mfg. of goods of job-worker

Summary

Issues:
1. Denial of modvat credit for capital goods purchased by another entity but used in the appellant's premises.
2. Interpretation of the definition of capital goods under Cenvat Credit Rules, 2002.
3. Applicability of previous tribunal decisions on ownership of capital goods.
4. Consideration of job work and final product distinction in credit availment.
5. Reversal of credit terms in the contract between the appellant and the entity owning the capital goods.

Analysis:
1. The impugned order denied modvat credit to the appellant for capital goods purchased by another entity, installed in the appellant's premises for job work. The denial was based on ownership and usage by the other entity, M/s. Gujarat Containers Ltd. The Tribunal found ownership irrelevant for credit eligibility, citing previous decisions like M/s. HIS Automotives Ltd. and M/s. Maruti Udyog Ltd. Ownership did not disentitle the appellant from credit.

2. The Tribunal analyzed the definition of capital goods under Rule 2(b) of Cenvat Credit Rules, 2002, emphasizing goods "used in the factory of the manufacture of the final product." Rule 3 allowed credit for duty paid on capital goods used in the factory for final product manufacture. The Tribunal reiterated that as long as capital goods were received in the factory and used for final product manufacture, modvat credit was available.

3. The Commissioner (Appeals) distinguished previous decisions on ownership of capital goods like jigs and fixtures, citing a Board circular. The Tribunal found this distinction unreasonable as ownership did not affect credit eligibility. The nature of the capital goods, whether dies, fixtures, or machines, did not impact the assessee's credit claim.

4. The appellant argued that the capital goods were used in manufacturing carboys, not their final product. However, since the carboys were further used in the appellant's factory for their final product, the credit was justified. The emergence of intermediate products exempted for captive consumption did not affect credit availment for capital goods or inputs used in their manufacture.

5. The terms of the contract between the appellant and M/s. Gujarat Containers Ltd. required the reversal of credit when the machine was shifted to the latter's factory. This reversal ensured revenue neutrality, as the appellant would reverse the credit upon machine removal. Consequently, the Tribunal allowed the appeal, setting aside the impugned order on 16-5-2008.