2010 (7) TMI 12 - SC - Central Excise

Modvat / Cenvat Credit - steel plates and M.S. channels used in the fabrication of chimney for the diesel generating set - CEGAT (Tribunal) has held that the the assessee is entitled to avail of MODVAT credit in respect of steel plates and M.S. channels used in the fabrication of chimney for the diesel generating set, by treating these items as capital goods in terms of Rule 57Q of the Central Excise Rules, 1944 - Held that Applying the user test on the facts in hand, we have no hesitation in holding that the steel plates and M.S. Channels, used in the fabrication of chimney would fall within the ambit of capital goods as contemplated in Rule 57Q. It is not the case of the Revenue that both these items are not required to be used in the fabrication of chimney, which is an integral part of the diesel generating set, particularly when the Pollution Control laws make it mandatory that all plants which emit effluents should be so equipped with apparatus which can reduce or get rid of the effluent gases. Therefore, any equipment used for the said purpose has to be treated as an accessory in terms of serial No.5 of the goods described in column (2) of the Table below Rule 57Q.

Summary

Issues:
Challenge to order allowing MODVAT credit for steel plates and M.S. channels used in chimney fabrication as capital goods under Rule 57Q.

Analysis:
1. The Tribunal allowed MODVAT credit for steel plates and M.S. channels used in chimney fabrication as capital goods under Rule 57Q. The assessee contended that these items qualified as capital goods under the table of Rule 57Q. The Revenue argued that these items were independently classifiable and not used as inputs for the final product, hence not eligible for MODVAT credit under serial No.5 of the table.

2. The Rule 57Q allows manufacturers to claim MODVAT credit on capital goods used in the factory for final product manufacture. The dispute centered around whether steel plates and M.S. channels used in chimney fabrication fell under serial No.5 of the table. The Court examined the definition of capital goods in a previous case and applied the "user test" to determine if these items could be considered capital goods.

3. Applying the "user test," the Court found that steel plates and M.S. channels used in chimney fabrication qualified as capital goods under Rule 57Q. These items were integral for the chimney, a necessary component of the diesel generating set, especially for compliance with Pollution Control laws. Therefore, the Tribunal's decision allowing MODVAT credit for these items was upheld.

4. The Court dismissed the Revenue's appeal, affirming the Tribunal's decision that the assessee was entitled to MODVAT credit for steel plates and M.S. channels used in chimney fabrication as capital goods under Rule 57Q. The judgment emphasized the importance of these items in the manufacturing process and their compliance with relevant laws.

5. In conclusion, the Court found no merit in the Revenue's appeal and upheld the decision in favor of the assessee. Each party was directed to bear their own costs. The judgment was delivered by D.K. Jain and C.K. Prasad on July 9, 2010, in New Delhi.