2002 (4) TMI 140 - AT - Central Excise

Summary

Issues Involved:
1. Availability of capital goods credit u/r 57Q of the Central Excise Rules, 1944.
2. Interpretation and application of Rule 57R(3).
3. Invocation of extended period of limitation.
4. Imposition of penalty and interest.

Summary:

1. Availability of Capital Goods Credit u/r 57Q:
The appellants, M/s. German Remedies Ltd., entered into an agreement with M/s. Madaus Pharmaceuticals (I) Pvt. Ltd. in 1995 to manufacture pharmaceutical formulations. Madaus provided capital goods to the appellants, which were used for manufacturing formulations exported under bond as per Rule 13 of the Central Excise Rules. The Commissioner of Central Excise disallowed the capital goods credit on the grounds that the goods were delivered on a bailment agreement, implying a lease basis, and the procedure u/r 57R(3) was not followed.

2. Interpretation and Application of Rule 57R(3):
The appellants argued that they satisfied all conditions under the Modvat Rules and that ownership of the capital goods was not a prerequisite for availing credit. They contended that Rule 57R(3) only imposed additional conditions for capital goods acquired on lease, hire-purchase, or loan agreement, and these conditions were not applicable in their case. They cited the decision in Ballarpur Industries Ltd. v. C.C.E., Belgaum, which held that non-fulfillment of Rule 57D(2) conditions does not result in disentitlement to credit.

3. Invocation of Extended Period of Limitation:
The appellants claimed that the demand for Modvat credit taken in March 1998 was barred by limitation as there was no suppression of facts. They had filed invoices with the Department along with R.T. 12 Returns, clearly indicating that the goods were on account of Madaus. The case against them was initiated based on the scrutiny of these invoices.

4. Imposition of Penalty and Interest:
The appellants argued that penalty u/r 57U(6) is imposable only in case of suppression of facts and that no penalty should be imposed as they had not utilized the credit amount in question. They also referred to the decision in Terene Fibres India Pvt. Ltd. v. C.C.E., Mumbai-VI, where no common ratio decidendi emerged due to diametrically opposite views of the Members.

Judgment:
The Tribunal held that Rule 57R(3) is applicable only in cases where capital goods are acquired by lease, hire-purchase, or loan agreement from a financing company. The appellants were eligible for Modvat credit as they complied with the conditions of Rule 57Q, and there was no requirement for ownership of the capital goods. The extended period of limitation was not applicable as the appellants had disclosed all relevant information to the Department. The penalty and interest imposed on the appellants were set aside. The issue of non-availability of Modvat credit for parts and components of the air-conditioning plant was remanded to the Adjudicating Authority for fresh consideration. The appeal was allowed on merits and limitation.