2009 (1) TMI 135 - HC - Central Excise

Credit on capital goods denial of credit on ground that purchase of goods financed by seller assessee claim that goods are purchased by them - Assessee claim that the benefit on Modvat credit goods cannot be denied to them as they have purchased goods from MUL and MUL is a manufacturing unit and not a finance company, is acceptable - Rule 57R(3) of CER is not applicable - credit cannot be denied merely on the ground that a particular procedure was not followed - receipt of the goods is not under challenge so there is no occasion of denial of credit

Summary

Issues:
1. Interpretation of Rule 57R(3) of the Central Excise Rules.
2. Allowance of Modvat credit for capital goods acquired on loan.
3. Imposition of penalty under Section 11AC of the Central Excise Act.

Interpretation of Rule 57R(3):
The High Court was approached by the revenue under Section 35G of the Central Excise Act to challenge a Tribunal's judgment. The key issue was whether a manufacturing unit providing capital goods to a buyer, without a financial arrangement, falls outside the purview of Rule 57R(3). The Tribunal had allowed Modvat credit for goods acquired by the manufacturer on loan, leading to the denial of credit due to failure to satisfy the procedure under Rule 57R(3)(ii)(b). The appellant argued that the respondent did not fulfill the conditions laid down in the rule and failed to provide necessary documents to the department. Conversely, the respondent argued that as the goods were purchased from a manufacturing unit and not a finance company, Rule 57R(3) did not apply. The Court found that the transaction was with a manufacturing unit, not a finance company, and thus, the provisions of Rule 57R(3)(ii)(b) were not applicable.

Allowance of Modvat Credit for Capital Goods:
The Court examined the specifics of Invoice No. 1128 and found that the goods were received from a manufacturing unit, not a finance company. The Court noted that the goods were received under the invoice, and the excise duty amount had been paid by the respondent. It was observed that the denial of credit under Rule 57R(3)(ii)(b) was not justified as the necessary procedures were considered met. The Court emphasized that even if a specific procedure was not followed, as long as the excise duty was paid, there was no loss to the department. The Tribunal's finding was upheld, stating that the Modvat credit could not be denied based on procedural grounds when the excise duty had been paid.

Imposition of Penalty under Section 11AC:
The Court found no irregularity or impropriety in the Tribunal's orders that would warrant interference. It was concluded that the appeal by the revenue lacked merit and was dismissed. The Court did not find any grounds for imposing a penalty under Section 11AC of the Central Excise Act.

This detailed analysis of the judgment showcases the Court's interpretation of Rule 57R(3), the allowance of Modvat credit for capital goods acquired on loan, and the decision regarding the imposition of penalties under Section 11AC of the Central Excise Act.