2010 (3) TMI 158 - HC - Central Excise

Cenvat / Modvat Credit - Whether modvat credit is admissible on wire Cloth and Felt when the same neither fall under the category of inputs under Rule 57-A as the same have not been used directly or indirectly in relation to the manufacture of the final products? Held that the assessee is entitled to avail the modvat credit on the inputs/material used in or in relation to the manufacture of the final products whether directly or indirectly and whether contained in the final product or not. - the material used in the manufacture of final products would be eligible modvat credit being an input. - use of wire cloth and felt would be entitled to modvat credit when used in manufacture of final products

Summary

Issues: Modvat credit admissibility on wire cloth and felt not falling under Rule 57-A category of inputs.

Analysis:
The High Court of Punjab and Haryana was presented with the issue of whether modvat credit is admissible on wire cloth and felt when they do not fall under the category of inputs under Rule 57-A, as they have not been used directly or indirectly in relation to the manufacture of the final products. The Court examined the provisions of Rule 57-A, which grant incentives to manufacturers to expand their business premises in India. It was noted that the manufacturer is entitled to claim modvat credit on finished excisable goods notified by the Central Government, and the credit of specified duty shall be allowed on inputs used in the manufacture of final products, whether directly or indirectly, and whether contained in the final product or not.

According to section 57B, the manufacturer of final products is allowed to take credit of the specified duty paid on inputs used in or in relation to the manufacture of final products, whether directly or indirectly, and whether contained in the final products or not. However, the manufacturer is not allowed to take credit on certain items like machines, machinery, equipment, etc. The Court emphasized that the assessee is entitled to avail modvat credit on inputs/material used in or in relation to the manufacture of final products, whether directly or indirectly, and whether contained in the final product or not.

Referring to legal precedents, the Court cited the case of Collector of Central Excise, Bangalore vs. Escorts Mahle Ltd., where the Supreme Court held that materials used in the manufacture of final products are eligible for modvat credit as inputs. The Court also mentioned cases where wire mesh, felt, and even parts of machinery were considered eligible for modvat credit. In light of these precedents and the interpretation of relevant provisions, the Court concluded that the use of wire cloth and felt would be entitled to modvat credit when used in the manufacture of final products. Therefore, the question posed was answered in favor of the assessee and against the revenue.

This comprehensive analysis by the High Court provides a detailed understanding of the legal principles and precedents governing the admissibility of modvat credit on inputs like wire cloth and felt, emphasizing the importance of their use in relation to the manufacture of final products to qualify for such credit.