2010 (3) TMI 260 - HC - Central Excise

Modvat / Cenvat Credit used in relation to manufacture - parts of machine Felts, Metal cloth, Phosphor Bronze, Wire cloth, Wire mesh and Dandy cloth. Held that According to section 57B, the manufacturer of final products shall be allowed to take credit of the specified duty paid on the 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, namely, (i) the inputs, which are manufactured and used within the factory of production, but according to section 57B (2), the manufacturer of the final products shall not be allowed to take credit of the duty paid on machines, machinery, equipment, apparatus, tools, appliances or capital goods. - It means, 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. - use of Felts, Metal cloth, Phosphor Bronze, Wire cloth, Wire mesh and Dandy cloth would be entitled to modvat credit when used in manufacture of final products.

Summary

Issues:
Whether certain parts of a machine used in the manufacture of specified final products are excluded from the definition of "input" under Rule 57A of the Central Excise Rules, 1944, and if assesses are entitled to Modvat credit for duty paid on such goods.

Analysis:
The Customs, Excise & Gold (Control) Appellate Tribunal referred a substantial question of law to the High Court regarding the eligibility of certain machine parts for Modvat credit under Rule 57A. The provision allows manufacturers to claim credit on specified duty for inputs used directly or indirectly in the manufacture of final products. However, Section 57B prohibits credit for duty paid on machines, machinery, equipment, etc. The High Court noted that the material used in the manufacture of final products qualifies as an input, as established in previous Supreme Court judgments. Additionally, exclusion clauses under Rule 57A do not apply to parts of machinery, as confirmed in various Division Bench rulings.

The High Court emphasized that parts like Felts, Metal cloth, Phosphor Bronze, Wire cloth, Wire mesh, and Dandy cloth are entitled to Modvat credit when used in the manufacture of final products. Citing precedents and the legislative intent behind the Modvat scheme, the Court ruled in favor of the assessee, allowing the credit for duty paid on these materials. The judgment aligns with the principle that inputs used in or in relation to the manufacture of final products, whether directly or indirectly, should be eligible for Modvat credit.

In conclusion, the High Court's decision clarifies the eligibility of specific machine parts for Modvat credit under the Central Excise Rules, 1944. By interpreting relevant provisions and considering past judicial interpretations, the Court affirmed the assessee's right to claim credit for duty paid on materials like Felts, Metal cloth, Phosphor Bronze, Wire cloth, Wire mesh, and Dandy cloth when used in the manufacturing process. The judgment upholds the purpose of the Modvat scheme to incentivize manufacturers and expand business operations in India.