2022 (1) TMI 665 - HC - Central Excise

MODVAT Credit - credit on goods used in erection of Captive Power Plant by two other Divisions of respondent No.1 s group - Rule 57Q(6) of the erstwhile Central Excise Rules, 1944 - non-filing the declaration under Rule 57G - procedures required under rule 57(T)(7) not followed - registration certificate as required under Rule 174 (4) of the erstwhile Central Excise Rules, 1944 not obtained - HELD THAT - The respondent No.1-M/s. Larsen Toubro Ltd. is a legal entity. The respondent No.1 has single Central Excise Registration for the entire factory and for manufacture of excisable goods. The registered ground plan of the respondent No.1 s factory covers the area where the captive power plant has been erected. It is undisputed that the power plant is within the approved ground plan of the factory. It is further pertinent to note that the entire electricity generated is used captively within the factory for the manufacture of dutiable cement - The perusal of record would show that the Divisions of the respondent No.1 namely Group-II and LTCG have no independent existence. They are not separate legal entity. They are the Divisions of respondent No.1. These Divisions are functioning as a part of respondent No.1 itself. The respondent No.1, therefore, availed the Modvat Credit being duty paid on the capital goods used for the erection of the captive power plant. It is further pertinent to note that there is hardly any dispute by the appellants that the goods are not falling under Rule 57-Q of the Rules 1944, being capital goods. The CESTAT was right in rejecting the appeal filed by the Revenue and uphelding the order passed by the Commissioner (Appeals). Modvat Credit on duty paid inputs or any goods used in the manufacture of Captive Power Plant without filing the declaration under Rule 57G and without following the procedures required under rule 57(T)(7) and without obtaining registration certificate as required under Rule 174 (4) of the erstwhile Central Excise Rules, 1944 - HELD THAT - The issue has become purely academic. Besides, the Commissioner (Appeals) has recorded a concrete finding that the procedural lapse on the part of the respondent No.1 would not be a ground to deny the Modvat credit, which the respondent No.1 is otherwise entitled. The CESTAT Mumbai has confirmed this order of the Commissioner. The reliance has been placed on Board circular No. 441/7/99-CX dt. 23.02.1999 - this question is also required to be answered in favour of the respondent No.1. There is no substance in the appeal filed by the Revenue - appeal deserves to be dismissed.

Summary

Issues Involved:
1. Whether the CESTAT was correct in holding that the respondent is entitled to avail credit on goods used in the erection of a Captive Power Plant by other divisions of the respondent's group under Rule 57Q(6) of the Central Excise Rules, 1944.
2. Whether the CESTAT was correct in holding that the respondent can avail Modvat Credit on duty-paid inputs or goods used in the manufacture of a Captive Power Plant without filing the declaration under Rule 57G, without following the procedures under Rule 57(T)(7), and without obtaining a registration certificate under Rule 174(4) of the Central Excise Rules, 1944.

Detailed Analysis:

Issue 1: Availment of Credit on Goods Used in Erection of Captive Power Plant
The core issue revolves around whether the respondent is entitled to avail Modvat Credit on goods used for erecting a Captive Power Plant under Rule 57Q(6) of the Central Excise Rules, 1944. The Assistant Commissioner initially disallowed the credit, but this decision was overturned by the Commissioner (Appeals) and the CESTAT, which held that the credit availed was according to law and rules.

The respondent argued that the Captive Power Plant was erected within the registered factory premises and the electricity generated was used for manufacturing dutiable cement. The respondent's divisions, Group-II and LTCG, which erected the power plant, are not separate legal entities but part of the respondent company. The CESTAT and the Commissioner (Appeals) accepted this argument, noting that Rule 57Q(6) allows credit for capital goods used in the factory of the manufacturer.

The court reviewed precedents, including the decisions in Commissioner of Central Excise, Mumbai-III v. N.R.C. Ltd., Gujrat Ambuja Cement Ltd. v. Commissioner of C. Ex. Chandigarh, and Kothari Sugars and Chemicals Ltd. v. Commissioner of C.Ex., Trichy, which supported the respondent's position. It was noted that capital goods acquired by a manufacturer for use in his factory are eligible for Modvat Credit, and this interpretation aligns with the purpose of the Modvat scheme.

The court concluded that the respondent was entitled to avail the Modvat Credit on the capital goods used for erecting the Captive Power Plant, as these goods were used within the factory premises for manufacturing dutiable goods.

Issue 2: Procedural Compliance for Availment of Modvat Credit
The second issue concerns whether the respondent can avail Modvat Credit without filing the necessary declarations and following the procedures under Rules 57G, 57(T)(7), and 174(4) of the Central Excise Rules, 1944. The Revenue argued that the respondent failed to comply with these procedural requirements.

The respondent countered that procedural lapses should not result in the denial of substantive benefits. The Commissioner (Appeals) and the CESTAT supported this view, citing Board Circular No. 441/7/99-CX dated 23.02.1999, which states that procedural irregularities should not lead to the denial of benefits if the substantive conditions are met.

The court agreed with this reasoning, noting that the procedural lapses did not affect the respondent's substantive entitlement to the Modvat Credit. The court emphasized that the purpose of procedural rules is to facilitate the implementation of substantive rights, not to defeat them.

Conclusion:
The court concluded that the respondent was entitled to avail the Modvat Credit on the goods used for erecting the Captive Power Plant and that procedural lapses should not result in the denial of this credit. The appeal filed by the Revenue was dismissed, and both issues were decided in favor of the respondent. The court upheld the decisions of the Commissioner (Appeals) and the CESTAT, affirming that the credit was correctly availed according to the law and rules.