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2003 (11) TMI 218 - AT - Central ExciseModvat credit on capital goods/inputs - Whether Modvat credit of duty paid on the capital goods/inputs which are used for manufacture of the final product viz. cotton yarn and during the course of which intermediate product viz. Combed/Carded cotton also known as sliver emerges is admissible or not - HELD THAT - We find that in similar circumstances the Larger Bench in the case of Ballarpur Industries Ltd. 1999 (12) TMI 88 - CEGAT NEW DELHI - LB has held that the fact that clause (d) covering inputs used as fuel for generation of electricity under explanation to Rule 57A was introduced with effect from 16-3-1995 cannot automatically lead to the conclusion that prior to that date input used for generation of electricity will not be entitled to Modvat credit. Rule 57R(2) makes it clear that intermediate products have come into existence cannot be a reason to vary or deny benefit of Modvat credit on the capital goods provided the final product is dutiable. In the instant case admittedly the final products viz. cotton yarn is chargeable to duty. In the background of the fact that intermediate products did emerge and emergence of such intermediate product cannot vary or deny the benefit of credit in respect of the capital goods as provided for under Rule 57R(2) just because such intermediate products have been included on a later date cannot lead to a conclusion that prior to the date of inclusion the benefit of credit cannot be given. So far as the marketability of the intermediate product in question is concerned it is now well settled that the goods in question are not marketable. Further the Central Board of Excise Customs have also issued clarification vide Circular No. 665/56/2002-CX. dated 25-9-2002 to the effect Modvat credit cannot be denied on capital goods used in intermediate products exempt from duty under the new set of rules. Thus we are of the considered opinion that Modvat credit of duty paid on the capital goods/inputs used by the assessees cannot be denied. We therefore uphold the impugned Orders-in-Appeal No. 23 24/99(MDU) dated 5-1-1999 and No. 106/2002 (CBE) (GVN) dated 30-4-2002 and dismiss the Revenue appeals and set aside the rest of the orders-in-Appeal. In the result all the three appeals filed by the Revenue are dismissed and the six appeals filed by the assessees are allowed with consequential relief if any.
Issues involved: Determination of admissibility of Modvat credit on capital goods/inputs used in the manufacture of final products where exempt intermediate products emerge.
Summary: In a case before the Appellate Tribunal CESTAT, Chennai, involving nine appeals with similar facts and legal issues, the question was whether Modvat credit on capital goods used in the production of final products, where exempt intermediate products emerge, is admissible. The appeals arose from orders-in-appeal where some assessees were allowed Modvat credit while others were denied. The assessees, engaged in manufacturing cotton yarn, availed Modvat credit on capital goods/inputs used in production. During manufacturing, exempt intermediate products like carded/combed cotton ("sliver") emerged, which were not specified as final products. The Revenue contended that Modvat credit was inadmissible as the capital goods were procured before the specified date. The Tribunal considered relevant case laws and rules, including Rule 57R(2) which allows credit on capital goods even if exempt intermediate products emerge, provided the final product is dutiable. Referring to precedents and a circular by the Central Board of Excise & Customs, the Tribunal held that Modvat credit cannot be denied on capital goods used in manufacturing exempt intermediate products if they are used in the production of dutiable finished goods. Consequently, the Tribunal upheld certain orders-in-appeal allowing Modvat credit for the assessees and dismissed the Revenue's appeals. The decision granted relief to the assessees and affirmed the admissibility of Modvat credit in such circumstances. In conclusion, the Tribunal dismissed the Revenue's appeals and allowed the assessees' appeals, providing consequential relief where applicable.
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