2004 (11) TMI 206 - AT - Central Excise

Summary

Issues:
- Challenge to denial of Modvat credit on Air Conditioners
- Imposition of penalty under Rule 173Q

Analysis:
- The appellant, a PSU Unit, challenged the denial of Modvat credit on Air Conditioners and imposition of a penalty of Rs. 25,000 by the Commissioner (Appeals). The appellant argued that Air Conditioners are essential inputs to maintain the desired temperature in the manufacturing process, preventing burnout of equipment. They contended that the law does not explicitly exclude Air Conditioners from Modvat credit eligibility, emphasizing the importance of all parameters contributing to the final product's functionality. The appellant also disputed the imposition of penalty under Rule 173Q, citing procedural compliance and lack of intent to evade duty. The Tribunal noted the appellant's arguments and reviewed relevant legal precedents to determine the validity of the denial of Modvat credit and penalty imposition.

- The Commissioner rejected the appellant's contention, asserting that Air Conditioners were used for 'Air' and not directly in the goods' manufacturing process. However, the Tribunal disagreed, considering the technical aspect and contractual obligations. The Tribunal examined the drawings of the equipment and contract details with the President of India, highlighting the Air Conditioners' essential role in maintaining temperature for satellite equipment use. Referring to legal precedents where similar benefits were extended for Air Conditioners in various manufacturing contexts, the Tribunal concluded that denying Modvat credit for Air Conditioners used in Army Transportable Satellite Terminals was unjustified. The Tribunal set aside the Commissioner's order, emphasizing the established legal position supporting the appellant's claim for Modvat credit on Air Conditioners.