2005 (9) TMI 171 - AT - Central Excise

Cenvat/Modvat - Capital goods - goods covered under the explanation to Rule 57Q - installation and erection of machinery in plant - HELD THAT - As per the appellants contention raised before the Commissioner it appears that the structural items are clearly linked with the machinery that is used in the production of final products. Thus following the decision of the Tribunal in United Phosphorous 2001 (8) TMI 265 - CEGAT, MUMBAI and Lloyds Steel 2004 (6) TMI 627 - CESTAT, MUMBAI , we hold that Modvat credit is admissible on the structural items which are so used as to make the machinery vibration free. We observe that over the years Rule 57Q and the explanation thereto has been interpreted liberally to take even the structurals in the ambit of capital goods provided that such structurals are closely associated with the machinery installed in a plant. We are therefore of the opinion that the impugned goods are eligible for Modvat credit under Rule 57Q as it existed. The appeal is allowed. The order of the Commissioner is set aside.

Issues:
Eligibility of Modvat credit under Rule 57Q of erstwhile Central Excise Rules.

Analysis:
The issue in this case revolves around the eligibility of Modvat credit under Rule 57Q of the erstwhile Central Excise Rules. The appellant contended that the goods in question, such as angles, channels, plates, and rods, are essential for the installation and erection of machinery in the plant and should be covered under the explanation to Rule 57Q where capital goods are defined. The appellant relied on various precedents and decisions to support their claim, emphasizing that the materials in question are closely associated with the machinery used in the production process. The Tribunal referred to several cases, including United Phosphorous Ltd., Jawahar Mills Ltd., and others, where it was held that certain structural items are eligible for Modvat credit if they are integral to the machinery and plant's functioning for the manufacture of final goods. The Tribunal interpreted the term 'plant' liberally to include not only machinery but also components and materials essential for production. It was established that construction materials unrelated to the machinery are not eligible for capital goods credit under Rule 57Q.

The appellant's argument was supported by a series of decisions where it was held that structural items like angles, channels, and plates, when used to support machinery and make it vibration-free, are eligible for Modvat credit. The Tribunal observed that Rule 57Q and its explanation have been interpreted liberally over the years to encompass structural items associated with machinery within the definition of capital goods. The Tribunal emphasized the importance of the close connection between the structural items and the machinery in determining eligibility for Modvat credit. The appellant's plea that the structural items in question are directly linked to the machinery's smooth operation and not merely used in the construction of the plant was upheld, leading to the conclusion that the impugned goods are indeed eligible for Modvat credit under Rule 57Q.

In conclusion, the Tribunal allowed the appeal, setting aside the Commissioner's order, and held that the structural items, including angles, channels, plates, and rods, are eligible for Modvat credit under Rule 57Q based on their close association with the machinery used in the production process. The decision highlighted the importance of the functional relationship between the structural items and the machinery in determining their eligibility for capital goods credit under the relevant rule.

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