2019 (3) TMI 1047 - HC - Central Excise

Cenvat Credit / Modvata Credit - Conveyor - Excluded capital goods - Whether the CESTAT was justified in holding that though the Chapter Heading 8431 is excluded in Sr.No.2 of the Table to Rule 57 Q (1) of the Central Excise Rules, 1944, parts of Conveyer is covered under Sr.No.5 of the Table? - Circular No.276/110/96-TRU dated 02.12.1996. Held that - The Tribunal should have referred to the Rule as prevailing and after the Circular was issued. Whether that Circular covers the goods under the amended Rule should have been clearly noted by the Tribunal. The Tribunal, for the purposes of upholding the availment, referred to goods such as conveyor classifiable under 8424 and if that is covered under Sr.No.2 and particularly, the non-excluded category, then, to that extent, the Tribunal may be right. However, when it was aware that the Table at Sr.No.2 clearly read as excluding goods falling under Heading 84.29 to 84.37, then, it should have also excluded the parts, accessories of these goods from the availment of Modvat Credit. We find that the reading of the Sr.No.5 by the Tribunal was improper and correct. The Circular would not enable the assessee in this case to avail of the credit. Though the Circular may say that the scope of this entry is not restricted to the components, spares and used under Chapters 82, 84, 85 or 90 but covers all components, spares and accessories of the specified goods irrespective of their classification, then, to that extent and without noticing the language of Table No.5, and only with the aid of this Circular, the Tribunal could not have allowed the assessee to avail the Modvat Credit. The ultimate conclusion of the Tribunal should not be entirely set aside. It is set aside only to the extent pertaining to the goods covered by chapter heading 8431 and its part (parts of conveyor) - Rest of the order of the Tribunal is upheld - appeal allowed in part.

Summary

Issues Involved:

1. Whether the CESTAT was justified in holding that parts of a conveyor are covered under Sr.No.5 of the Table to Rule 57Q(1) of the Central Excise Rules, 1944, despite Chapter Heading 8431 being excluded in Sr.No.2 of the Table.
2. Whether the CESTAT was justified in relying upon Circular No.276/110/96-TRU dated 02.12.1996 to hold that for the purpose of parts, Chapter Heading is immaterial.

Issue-wise Detailed Analysis:

1. Justification of CESTAT's Decision on Parts of Conveyor:

The Revenue's appeal challenged the CESTAT's decision, which allowed Modvat Credit on parts of conveyors under Chapter Heading 8431, despite its exclusion in Sr.No.2 of the Table to Rule 57Q(1) of the Central Excise Rules, 1944. The Revenue argued that the Tribunal misinterpreted the legal provisions and ignored the plain language of the rule, which explicitly excluded certain goods from being classified as capital goods eligible for credit.

The Tribunal had to consider whether the exclusion applied to all goods under Chapter Heading 8431 or only specific items. The Tribunal concluded that parts of conveyors, though falling under Chapter Heading 8431, were covered under Sr.No.5 of the Table, which includes components, spares, and accessories of goods specified against Sr.Nos.1 to 4, irrespective of their classification.

The High Court analyzed the language of Rule 57Q and the Table, noting that Sr.No.2 excludes certain goods from Chapter 84, including those under Heading 8431. However, Sr.No.5 covers components, spares, and accessories of goods specified in Sr.Nos.1 to 4. The Court found that the Tribunal's interpretation was incorrect because it failed to consider the entire excluded category. Goods under Heading 8431 should not qualify for credit if they are excluded under Sr.No.2, even if they are parts of conveyors.

2. Reliance on Circular No.276/110/96-TRU:

The Tribunal relied on Circular No.276/110/96-TRU, which clarified that components, spares, and accessories of specified capital goods are eligible for credit, irrespective of their classification. The Circular aimed to ensure that the scope of eligible components was not restricted to specific chapters.

The High Court reviewed the Circular and its implications. The Circular stated that capital goods eligible for credit could be specified by classification or description and emphasized that components, spares, and accessories should be considered irrespective of their classification. However, the Court noted that the Circular's guidance should not override the explicit exclusions in the Table to Rule 57Q.

The Court concluded that the Tribunal erred in allowing Modvat Credit based solely on the Circular without adequately considering the specific exclusions in the Table. The Tribunal's decision to permit credit for parts of conveyors under Chapter Heading 8431 was not consistent with the rule's language and exclusions.

Conclusion:

The High Court partially set aside the Tribunal's decision, holding that parts of conveyors under Chapter Heading 8431 are excluded from being classified as capital goods eligible for Modvat Credit under Sr.No.2 of the Table to Rule 57Q(1). The Tribunal's reliance on Circular No.276/110/96-TRU was deemed inappropriate without considering the explicit exclusions in the rule. The appeal was allowed to the extent indicated, and the rest of the Tribunal's order was upheld.