2007 (12) TMI 208 - HC - Central Excise

Universal measuring machine used to find out whether goods (automobile components) manufactured fit into specification or design such machine fall within definition of Capital goods - revenue contend that even without this machine product can be manufactured but that does not mean that revenue can direct the assessee to manufacture goods without the use of the machine in question credit cannot be disallowed

Summary

Issues:
1. Denial of Modvat credit on universal Measuring Machine.
2. Eligibility of the universal Measuring Machine for Modvat credit as capital goods.

Analysis:

Issue 1: Denial of Modvat credit on universal Measuring Machine
The petitioner, engaged in manufacturing automobile components, availed Modvat credit on a universal measuring machine used for measurement of jigs, fixtures, and gauges. The revenue sought to disallow the credit, claiming the machine did not contribute to the manufacturing process or change any substance, thus not falling under the definition of capital goods as per Rule 57Q of the Central Excise Rules. Despite the petitioner's detailed explanation on the machine's usage for manufacturing intermediary and final products, the Commissioner of Appeals and the tribunal upheld the disallowance. The petitioner argued that the machine's precise measurements were crucial for meeting product specifications and quality standards, essential for market competitiveness and ISO 9001 compliance.

Issue 2: Eligibility of the universal Measuring Machine for Modvat credit as capital goods
The counsel for the revenue contended that the machine did not align with the categories defining capital goods under Rule 57Q, emphasizing that product manufacturing and marketing could proceed without it. However, the court disagreed, noting the machine's critical role in ensuring product conformity to specifications and design. The court highlighted that even though products could be manufactured without the machine, its usage significantly enhanced product quality and market competitiveness. Referring to a judgment by the Punjab and Haryana High Court, the court concluded that the machine's importance in maintaining product quality aligned with the definition of capital goods. Consequently, the court ruled in favor of the petitioner, allowing the Modvat credit on the universal Measuring Machine.

In conclusion, the court's judgment favored the petitioner, emphasizing the essential role of the universal measuring machine in ensuring product quality and compliance with standards, thus qualifying it for Modvat credit as capital goods under Rule 57Q of the Central Excise Rules.