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Issues involved: Modvat credit eligibility u/r 57Q of Central Excise Rules for capital goods installed outside factory premises.
Summary: The case involved M/s. Vikas Industrial Gas claiming Modvat credit for Central Excise Duty paid on a pump installed outside their factory premises. The dispute arose as to whether the pump, located one kilometer away from the factory, qualified for Modvat credit under Rule 57Q, which allows credit on capital goods "used in the factory of the manufacturer." The appellant argued that the pump was essential for the manufacturing process of industrial gases, contending that the definition of "factory" under Section 2(e) of the Central Excise Act included the location of the pump. The Central Excise authorities denied the credit, emphasizing that the pump was not installed within the factory premises. The matter was referred to a Larger Bench due to a Difference of Opinion between previous decisions. During the hearing, the appellant was absent, and the case was decided based on their written submissions and the arguments presented by the ld. DR for the Revenue. The appellant asserted that drawing water from the reservoir was part of the manufacturing process, integral to gas production, and that the pump's location should be considered part of the factory under the Act's definition. They cited relevant case law to support their position. In response, the ld. DR argued that Rule 57Q required capital goods to be "used in the factory" where excisable goods are manufactured, and the pump's location outside the factory did not meet this criterion. Referring to the decision in the Madras Cements case, the ld. DR contended that the pump site was not part of the factory premises, as evidenced by the absence of registration under Rule 174. The ld. DR maintained that the pump's location did not align with the definition of factory under Section 2(e) of the Act. The Tribunal analyzed the definition of "factory" under Section 2(e) and concluded that the pump site, being a kilometer away from the factory, did not fall within the factory precincts. The Tribunal emphasized that the manufacturing process begins only after materials are brought into the factory, not during procurement. Drawing from the Madras Cements case, the Tribunal held that activities like mining for raw materials were separate from the manufacturing process. Consequently, the Tribunal upheld the decision to deny Modvat credit for the pump, affirming the Commissioner's distinction of relevant judgments. Ultimately, the reference was answered in favor of the Revenue, confirming the Tribunal's decision in the Madras Cements case and dismissing the appeal.
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