2003 (12) TMI 253 - AT - Central Excise

Cenvat/Modvat - Qualification of parts, accessories/spares of Captive Power Plant (CPP) as 'Capital Goods - Non-fulfilment of condition set out in the proviso to sub-rule (2) of Rule 57R - Disentitlement of capital goods duty credit due to non-payment of excise duty on steam/electricity generated in CPP and its usage outside the factory - Relevance of CPP in the manufacture of the final product 'Sponge Iron' - HELD THAT - We find, after carefully examining the legislative history of the capital goods credit scheme, that the learned Commissioner has rightly found that, under the provisions of Rule 57Q (up to 31-3-2000) and the new Rule (from 1-4-2000), the respondents were entitled to avail Modvat credit on such capital goods, not affected by the provisions of Rule 57R(2). We are in full agreement with the view taken by the Commissioner and are supported by the Larger Bench decision in Ballarpur Industries case as also the decision in German Remedies case 2002 (4) TMI 140 - CEGAT, MUMBAI . In the case of Ballarpur Industries 1999 (12) TMI 88 - CEGAT, NEW DELHI - LB , the question was whether Modvat credit of the duty paid on fuels used in diesel generating sets for generation of electricity for manufacture of excisable goods was admissible to the assessees under Rule 57A. A plea was raised by the Revenue that electricity was not excisable goods, and therefore, availment of Modvat credit on the input used for generating electricity was hit by the provisions of Rule 57D(2), which provided that credit of duty on any inputs shall not be denied or varied on the ground that any intermediate products have come into existence during the course of manufacture of the final product and that such intermediate products are, for the time being, exempt from the whole of the duty of excise leviable thereon or are chargeable to nil rate of duty. The Larger Bench held that Rule 57D(2) did not set out any condition precedent for extending Modvat credit to the assessee and that non-fulfilment of any condition could not result in any disentitlement of the assessee to the credit. This ratio of the decision of the Larger Bench was followed in the case of German Remedies also. We find that, the provisions of Rule 57R(2) being similar to those of Rule 57D(2), the above ratio is applicable to the instant case also. However, we leave open the question whether the provisions are superfluous or not. We hold that the Modvat credit taken by the respondents cannot be denied to them on the ground of non-fulfilment of any condition set out under sub-rule (2) of Rule 57R as the Revenue has no case that the party did not fulfil the requirements of Rule 57Q/Rule 57AB. Relevance of CPP in the manufacture of the final product 'Sponge Iron' - The supply of surplus electricity by the respondents outside the sponge iron unit through MPEB grid amounted to non-fulfilment of the condition that the electricity generated by the capital goods should be solely and exclusively used captively for the manufacture of sponge iron and no part of it should be used otherwise. The appellant has stated that this issue was not examined by the Commissioner. We find that the said issue was exhaustively discussed by the adjudicating authority in the impugned order. The authority has held that the expression 'any other purpose' used in the proviso to Rule 57R(2) has wide scope and the use of electricity was not confined within the factory. The Commissioner has also observed, quite rightly, that restricting the use of surplus electricity within the factory is neither logical nor possible. We have not found any merit in this appeal of the Revenue. The order of the Commissioner is upheld and the appeal is rejected.

Summary

Issues Involved:
1. Qualification of parts, accessories/spares of Captive Power Plant (CPP) as 'Capital Goods' u/r 57Q/57AB of the Central Excise Rules, 1944.
2. Disentitlement of capital goods duty credit due to non-payment of excise duty on steam/electricity generated in CPP and its usage outside the factory.
3. Relevance of CPP in the manufacture of the final product 'Sponge Iron'.

Summary:

Issue 1: Qualification of CPP Parts as 'Capital Goods'
The Tribunal examined whether parts, accessories, and spares of the Captive Power Plant (CPP) qualify as 'Capital Goods' under Rule 57Q/57AB of the Central Excise Rules, 1944. The respondents, M/s. H.E.G. Ltd., had availed credit on various components of the CPP used for generating electricity, which was essential for manufacturing sponge iron. The Tribunal upheld the Commissioner's decision that such components are integral to the CPP and fall within the definition of capital goods, as supported by the Supreme Court's decision in CCE v. Jawahar Mills Ltd. and relevant notifications during the period.

Issue 2: Disentitlement Due to Non-Payment of Excise Duty on Steam/Electricity
The Tribunal addressed whether the proviso to Rule 57R disentitles the availment of capital goods duty credit on parts of CPP, given that the electricity generated was not fully utilized within the factory and was partly wheeled out to another factory. The Tribunal found that the electricity generated by the CPP was not a final product and thus, sub-rule (1) of Rule 57R did not bar the respondents from availing Modvat credit. The expression 'for any other purpose' in the second proviso to sub-rule (2) of Rule 57R allowed the use of electricity for purposes other than manufacturing sponge iron, including transmission to another factory.

Issue 3: Relevance of CPP in Manufacturing Sponge Iron
The Tribunal considered whether the CPP had any concern in the manufacture of sponge iron, given that it was used exclusively for generating electricity. The Tribunal concluded that the CPP was essential for generating electricity, which was indispensable for manufacturing sponge iron. Therefore, the parts, components, and accessories of the CPP were eligible for Modvat credit under Rule 57Q/57AB.

Conclusion:
The Tribunal upheld the Commissioner's order, rejecting the Revenue's appeal. The Modvat credit taken by the respondents on the components of the CPP was deemed admissible, as the conditions under Rule 57Q/57AB were fulfilled, and the use of electricity generated by the CPP for purposes other than manufacturing sponge iron did not disqualify the credit.