2002 (1) TMI 80 - HC - Central Excise

Summary

Issues Involved:
Whether Modvat credit is admissible u/r 57A of the Central Excise Rules, 1944 for Wire Mesh and Felt used in the manufacture of paper.

Summary:
The High Court of Punjab and Haryana at Chandigarh considered a bunch of seven petitions filed by the Revenue under Section 35H(1) of the Central Excise Act, 1944, regarding the admissibility of Modvat credit for Wire Mesh and Felt used in the manufacture of paper. The Assessing Authority disallowed the claim of the respondent, stating that Wire Mesh and Felt were not inputs in the paper manufacturing process. However, the Collector (Appeals) reversed this decision, leading to an appeal by the department before the Tribunal. The Tribunal's decision was in favor of the assessee, prompting the Revenue to file petitions for reference to the High Court.

In the arguments presented before the Court, the Revenue contended that Wire Mesh and Felt are part of the machinery and not inputs for paper manufacturing, thus the Modvat credit should not be allowed. On the other hand, the respondent's counsel argued that regardless of their classification, the assessee is entitled to Modvat credit for Wire Mesh and Felt.

The Court analyzed Rule 57A, which allows Modvat credit for goods used directly or indirectly in the manufacturing process. It was acknowledged that Wire Mesh and Synthetic Cloth are indeed used in the production of paper and qualify as 'inputs' under Rule 57A. However, the Explanation to Rule 57A excludes machines and machinery from the definition of inputs. This led to a discussion on Rule 57Q, which permits Modvat credit for capital goods, including machinery used in the manufacturing process.

Ultimately, the Court concluded that if Wire Mesh and Felt are considered inputs, Modvat credit is admissible under Rule 57A. If they are classified as machinery, the credit falls under Rule 57Q. The Tribunal's decision was deemed reasonable, and the Revenue did not suffer any loss. It was noted that the assessee had claimed benefits under Rule 57A, precluding a claim under Rule 57Q. Therefore, the Court ruled in favor of the assessee, dismissing the Revenue's contentions.

No further legal points were raised, and the petitions under Section 35H were dismissed, with no costs awarded in these cases.