2008 (2) TMI 369 - HC - Central Excise

Deemed credit under notification No. 58/97 - Credit on captive consumption of inputs (specified re-reolled non-alloy steel products, bars, flats etc.) goods (duty paid inputs) were removed from the Re-rolling unit to Forging factory - both the factories are owned by the same person held that there is no earthly reason, not to allow the modvat credit to the forging division of the assessee; simply because the two units are owned by the same company, and/or are situated in the same premises.

Summary

Issues: Interpretation of Notification No. 58/97 CE regarding modvat credit on captive consumption of inputs.

Comprehensive Analysis:
1. The judgment revolves around the interpretation of Notification No. 58/97 CE concerning the availability of modvat credit on captive consumption of inputs. The primary question raised was whether the assessee could avail of modvat credit under the given circumstances.

2. The facts of the case involve M/s. Shivagrico Implements Ltd., which was utilizing modvat credit for re-rolled non-alloy steel products in the manufacture of agricultural implements. The dispute arose when the Department sought to deny the modvat credit based on the conditions specified in the notification. The Tribunal overturned the Department's decision, emphasizing that modvat credit should not be denied solely on the grounds of captive consumption of duty-paid inputs.

3. The Department contended that the notification required two distinct manufacturers for the transaction, one producing inputs and the other final products. However, the Tribunal found that the substantive requirements of the notification were met by the assessee. It differentiated between substantive and procedural requirements, asserting that strict adherence to procedural conditions was not necessary to claim modvat credit.

4. The Court concurred with the Tribunal's findings, stating that the notification did not mandate separate manufacturers for inputs and final products. It highlighted that the explanation in the notification clarified the concept of "invoice price" but did not impose conditions regarding the ownership or location of manufacturing units.

5. Notably, the Court emphasized that the purpose of modvat credit was to prevent double taxation on the same goods. Since the manufacturer supplied inputs to its forging division and other buyers who availed modvat credit, denying credit based on ownership or location would be unjust. The Court upheld the Tribunal's decision, ruling in favor of the assessee and affirming their entitlement to modvat credit on captive consumption of inputs.

6. In conclusion, the judgment clarifies that the assessee fulfilled the necessary conditions for claiming modvat credit as per Notification No. 58/97 CE. It underscores the importance of substantive compliance over procedural formalities and rejects the notion of requiring separate manufacturing units for availing modvat credit, ultimately siding with the assessee in this dispute.