2003 (7) TMI 110 - AT - Central Excise

Summary

Issues involved: Interpretation of rules relating to Modvat credit for capital goods received but not installed, denial of credit by the Commissioner, and imposition of penalty.

Summary:
1. The appellant received capital goods in 1996-97 for manufacturing colored coated paper but did not install them. The rules at that time required installed capital goods for taking credit. New Rule 57AC allowed Cenvat credit for duty paid on capital goods without installation, with conditions on credit percentage and possession. The department objected to the credit taken by the appellant, leading to the Commissioner's order denying credit and imposing a penalty.

2. The Commissioner denied credit based on the interpretation that capital goods must be "used in the factory on the manufacture of the final product" as per Rule 57AA(a).

3. The appellant argued that the word "used" in the rule does not require immediate use but eventual utilization. Historical practice of taking credit on inputs upon receipt supports this argument. A Ministry of Finance circular also clarified that installation is not a prerequisite for taking credit on capital goods.

4. The Tribunal found no requirement in the rules for capital goods to be installed before taking credit. The Ministry of Finance circular explicitly stated that installation is not mandatory. The Commissioner's interpretation would contradict established practices and the Board's directives.

5. The appeal was allowed, and the Commissioner's order denying credit and imposing a penalty was set aside.

This judgment clarifies the interpretation of rules regarding Modvat credit for capital goods and emphasizes that installation is not a prerequisite for taking credit, aligning with the Ministry of Finance's circular and established practices.