2007 (1) TMI 96 - HC - Central Excise

Asbestos gasket sheets used by the assessee for connecting various equipments through which the process of gas and steam passes - Apparently, the user is essential and adjunct to the main plant and must fall in the same domain of accessories necessary for smooth running of the plant - eligible for modvat credit as a capital good

Summary

Issues:
Whether asbestos gasket sheets used for connecting various equipments through which gas and steam pass are eligible for modvat credit as an input or a capital good under the Cenvat Credit Rules, 2001.

Analysis:
The appeal raised the substantial question of law regarding the eligibility of asbestos gasket sheets for modvat credit under the Cenvat Credit Rules, 2001. The assessee claimed cenvat credit for duty paid on the asbestos gasket sheets used to connect equipment for the passage of gas and steam. The Adjudicating Authority disallowed the claim stating that the sheets were not included in the capital goods scheme under the Rules. However, the assessee argued that the sheets were necessary accessories for the principal plant's operation. The Tribunal allowed the assessee's claim for cenvat credit, disagreeing with the Adjudicating Authority's decision.

The Tribunal's decision was supported by legal precedents, including the Union of India Vs. M/s Grasim Industries Ltd. & Anr. and Union of India Vs. M/s Aditya Cement & Anr. The precedents emphasized that accessories need not be directly involved in the primary function of a machine to be eligible for modvat credit. The accessories must be related to the manufacturing process or making changes to goods. In this case, the asbestos gasket sheets were deemed essential for the smooth operation of the plant, falling within the domain of necessary accessories as per the legal interpretation provided by the precedents.

Based on the Tribunal's findings and the legal principles from the cited decisions, the High Court upheld the Tribunal's decision to allow the assessee's claim for cenvat credit on the asbestos gasket sheets. The Court concluded that the sheets were integral to the plant's operation, essential for the passage of gas and steam. Therefore, the appeal was dismissed, affirming the Tribunal's decision, and no costs were awarded in the matter.