2002 (5) TMI 140 - AT - Central Excise

Summary

Issues: Modvat credit on capital goods, interpretation of Rule 57Q of Central Excise Rules, denial of credit and penalty imposition

Modvat credit on capital goods:
The issue in this case pertains to the Modvat credit on capital goods, specifically regarding the interpretation of Rule 57Q of the Central Excise Rules. The dispute arose when a show cause notice was issued to the assessee for disallowing credit availed on tools used for training and imposing a penalty for contravention of Rule 57Q. The Deputy Commissioner disallowed the Modvat credit on capital goods used in the training center, stating they were not used in the manufacture of goods. The Commissioner upheld this decision, leading to an appeal by the party.

Interpretation of Rule 57Q:
The party argued that an amendment to Rule 57Q, brought out by Notification No. 11/95, expanded the scope of Modvat credit eligibility on capital goods. The party contended that the goods must be used in the factory of the manufacturer as per the amended rule. The counsel referred to the amended explanation to Rule 57Q and relied on previous tribunal decisions and a Supreme Court ruling to support their argument that the usage of capital goods in the manufacture of goods is not essential for Modvat eligibility post-amendment.

Denial of credit and penalty imposition:
The Revenue justified the denial of Modvat credit on the grounds that the tools were used in the training center and not connected to the manufacture of the finished product. The Revenue emphasized that the overall intention of the Modvat provisions should be considered for credit eligibility. The Revenue cited a tribunal decision in a similar case to support their stance. The party countered by stating that the amendment to Rule 57Q was not considered in the referenced case, rendering it per incuriam.

Judgment:
After considering the arguments from both sides and reviewing the records, the tribunal noted that the scope of availing Modvat credit had been enlarged by amending Rule 57Q through Notification 11/95. The tribunal highlighted that post-amendment, to avail Modvat credit on capital goods, they must be used in the factory of the manufacturer as per the table annexed to Rule 57Q. The tribunal observed that the training center was part of the factory premises, and the goods were not excluded from being considered capital goods. The tribunal concluded that since there was no dispute about the use of the item in the factory, the Modvat credit should not be denied. Therefore, the tribunal allowed the appeal, ruling in favor of the appellant.