2005 (3) TMI 368 - AT - Central Excise

Summary

Issues:
1. Denial of Modvat credit on capital goods sold to finance company.
2. Interpretation of Rule 57R (3) of Central Excise Rules.
3. Application of Notification No. 27/94-C.E. regarding Modvat credit on leased capital goods.

Analysis:
The appellant appealed against the order denying Modvat credit for capital goods sold to a finance company. The Commissioner (Appeals) held that since the goods were sold, credit cannot be claimed. The appellant argued that selling the goods to the finance company amounts to removal, making them liable to pay duty on the capital goods. They relied on Tribunal decisions stating that credit cannot be denied if goods are not physically removed from the factory, even in case of sale. The Revenue contended that as per Rule 57R (3), credit cannot be taken on goods acquired through lease or hire-purchase. They argued that since the goods were sold, ownership transferred to the finance company, justifying the denial of credit.

The dispute centered on Modvat credit for capital goods imported, installed, and used in manufacturing, with subsequent transfer of ownership to a finance company. The appellant availed credit, and the finance company leased the goods back. The Tribunal noted that Notification No. 27/94-C.E. allowed credit for goods acquired through lease or hire-purchase from finance companies. As the goods were not physically removed from the factory and remained in use, the impugned order denying credit was set aside, and the appeal was allowed. The Tribunal's decision was based on the fact that the capital goods were still being utilized in the manufacturing process, aligning with the provisions of the notification and previous Tribunal decisions.

In conclusion, the Tribunal's ruling favored the appellant, emphasizing that the continued use of capital goods in manufacturing, despite ownership transfer to a finance company, qualified for Modvat credit under the relevant notification. The decision highlighted the importance of the goods' physical presence and utilization in the factory for determining credit eligibility, ultimately overturning the denial of credit by the Revenue based on the sale of the goods to the finance company.