2004 (6) TMI 178 - AT - Central Excise

Summary

Issues:
1. Denial of Modvat credit under the Compounded Levy Scheme.
2. Interpretation of Para 5 of Notification No. 19/2000 regarding credit prohibition.
3. Applicability of Modvat credit scheme on capital goods.
4. Validity of Modvat credit earned during the Compounded Levy Scheme.

Analysis:
1. The appellant, a processor of fabrics, purchased capital goods eligible for Modvat/Cenvat credit under Rule 57Q of the Central Excise Rules. However, during the relevant period, duty was payable under the Compounded Levy Scheme at a fixed rate. After the rescinding of the scheme, the appellant sought to utilize the Modvat credit earned on the capital goods. The lower authorities denied this claim based on Para 5 of Notification No. 19/2000, which prohibited availing credit during the operation of the Compounded Levy Scheme.

2. The contention of the appellants was that the prohibition under Para 5 of the Compounded Levy Notification applies only during the scheme's operation. They argued that once the prohibition is lifted, the earned Modvat credit should be available for duty payment. Citing judgments and circulars, the appellants emphasized that the credit earned remains with the assessee and can be utilized subsequently. The learned SDR, however, argued that the Compounded Levy Scheme overrides the Modvat credit scheme.

3. The Tribunal observed that the capital goods procured were eligible for Modvat benefit, and the denial of credit was due to the temporary application of the Compounded Levy Scheme. The prohibition on credit usage under the scheme was valid only during its operation and did not extend beyond the scheme's validity period. The Tribunal highlighted the distinction between 'earning' credit and utilizing it, especially under the Modvat credit scheme for capital goods, where credit could only be utilized upon installation of machinery.

4. Ultimately, the Tribunal held in favor of the appellant, stating that the earned Modvat credit should not lapse permanently due to the temporary application of the Compounded Levy Scheme. The Tribunal emphasized that credit is earned upon purchase or procurement of goods and should remain available for utilization when the prohibition is lifted. The decision was supported by the principles established in previous judgments and circulars, ensuring that the appellant could avail of the Modvat credit for duty payment post the Compounded Levy Scheme period.

This detailed analysis of the judgment provides a comprehensive understanding of the issues involved and the Tribunal's reasoning in reaching its decision.