2018 (2) TMI 316 - HC - Central Excise

MODVAT/CENVAT credit - Whether the Tribunal is correct in law in holding that the H.R. Coils cannot be considered as components or accessories of the machinery so as to be eligible for Modvat credit of duty paid in terms of Rule 57Q of CER? - Held that - once the appellant-assessee demonstrated before the authorities that use of the HR coils in the cooling system of the power plant was essential for its functioning, they necessarily have to be treated as part of the machinery qualifying them as capital goods. Once that is so, the appellant-assessee was eligible under Rule 57Q of the Rules of 1944 to avail Modvat credit thereon - credit allowed - appeal allowed - decided in favor of appellant-assessee.

Summary

Issues:
1. Whether H.R. Coils can be considered as components or accessories of machinery for Modvat credit eligibility.
2. Whether the Tribunal was correct in confirming the orders of the lower authorities regarding the use of subject goods for the fabrication of pipelines in a Captive Power Plant.

Analysis:

Issue 1:
The appellant, a power plant, sought Modvat credit on H.R. Coils used for pipeline fabrication, condenser cooling system, and water pumping. However, the claim was denied by lower authorities and upheld by the Tribunal, stating that H.R. Coils were general purpose items not identified as spares or accessories of machinery. The appellant argued that the use of H.R. Coils was essential for the power plant's functioning, citing a judgment by the Rajasthan High Court emphasizing the essentiality of components for machinery operation. The Court agreed, holding that as the coils were crucial for the power plant's cooling system, they qualified as capital goods, making the appellant eligible for Modvat credit under Rule 57Q of the Central Excise Rules, 1944.

Issue 2:
The Tribunal's decision to confirm the lower authorities' orders was based on the premise that H.R. Coils were not capital goods and could serve multiple purposes. However, the appellant demonstrated the coils' essential role in the power plant's cooling system, arguing that they should be considered part of the machinery. Citing relevant precedents, the Court concluded that the coils' direct involvement in the power plant's operation qualified them as capital goods, entitling the appellant to Modvat credit. Consequently, the Court ruled in favor of the appellant-assessee, allowing the appeal without costs.

This judgment clarifies the criteria for determining the eligibility of components as capital goods for Modvat credit under the Central Excise Rules, emphasizing the essentiality of the components in the functioning of the machinery.