2005 (7) TMI 225 - AT - Central Excise

Cenvat/Modvat - Capital goods - credit on Coal Briquette Plant - machine for making briquettes from fine ore amounts to Manufacture Or Not - HELD THAT - The term used in the factory of the manufacture of the final products .. could not mean an exclusive or only use for the manufacture of final products of the availer of the credit. So long as the entity is required to be used in the factory of the final product manufacturer the machinery/plant would be eligible. When read with Rule 6(4) of the Cenvat Rules the credit could not be denied even if the use is for manufacture of non-excisable entity eg. Electricity generated in the Power House Plant in case of Power House Capital Goods. Therefore even if the process of conversion of Iron ore fines to Briquettes does not amount to manufacture of excisable goods under the Central Excise law the credit cannot be denied. After determining as above we find the word used in the definition of Capital Goods will not and cannot be interpreted to mean that it should be actually in use. The potential use by the manufacturer at a later date would also entitle the credit. The exclusive use as already held is not contemplated. The plant in this case is capable for use for converting the Iron or fines to be used by the appellants at a future date. The word used can denote be intermittent and/or use sometime in future; we find that both sides agree that the appellants are a manufacturer of declared final products Iron and Steel and have the capacity or potential to use iron ore fines also. Therefore credit as over led cannot be denied. Thus we find no reason and deny the credit on grounds of ineligibility as determined by the lower authority. The appeal consequent to the findings is allowed after setting aside the order.

Summary

Issues:
Eligibility of capital goods credit on "Coal Briquette Plant" for converting Iron Ore fines into briquettes.

Analysis:
1. The main issue in this case was the eligibility of capital goods credit on a "Coal Briquette Plant" used for converting Iron Ore fines into briquettes for further use in manufacturing Iron & Steel Products. The dispute centered around whether the appellants were entitled to take credit on a machine used for non-dutiable goods manufacturing.

2. The Tribunal examined the relevant provisions of the Cenvat Credit Rules and emphasized that the right to take credit is granted under Rule 3 for inputs or capital goods used in the manufacture of final products subject to duty of excise. Since the conversion of fine ores into briquettes did not amount to 'manufacture' under the Central Excise Act, the appellants were not entitled to credit as the final products were not excisable goods subject to duty.

3. Referring to a previous CEGAT judgment, the Tribunal highlighted that in cases where there is no manufacture involved, the Modvat Scheme cannot apply. The Tribunal reiterated that the right to take credit is not absolute and must align with the statutory provisions regarding excisable goods subject to duty.

4. Upon analyzing the definition of 'Capital Goods' under the Cenvat Credit Rules, the Tribunal concluded that the "Coal Briquette Plant" fell within the definition and could not be excluded. The term "used in the factory of the manufacture of the final products" was interpreted to include machinery used in the factory, even if the use was for non-excisable entities.

5. The Tribunal further clarified that the word 'used' in the definition of Capital Goods did not require exclusive or current use, as potential future use by the manufacturer would also entitle credit. Since the appellants had the capacity and potential to use the plant for converting Iron ore fines in the future, the credit could not be denied based on ineligibility grounds.

6. Ultimately, the Tribunal allowed the appeal, setting aside the lower authority's decision to deny credit on the grounds of ineligibility, emphasizing the broader interpretation of the term 'used' in the context of capital goods eligibility.

7. The judgment provides a comprehensive analysis of the statutory provisions, previous judicial decisions, and the specific facts of the case to determine the eligibility of capital goods credit in a scenario involving the conversion of non-dutiable goods into a form not subject to excise duty.