2010 (4) TMI 411 - AT - Central Excise

Cenvat Credit- A show cause notice came to be issued to the appellants requiring them to show cause against denial of Modvat credit to the tune of Rs. 41,82,161/- . According to the Department the said Modvat credit was sought to be availed by the appellants claiming the items to be capital goods within the meaning of the said expression under Rule 57Q(1) of the Central Excise Rules, 1944, when, in fact, the said items did not satisfy the requirements of the said expression. The adjudicating authority by its order dated 28th May, 2001 confirmed the demand to the tune of Rs. 41,81,811/- and ordered payment of interest thereon besides imposition of penalty of Rs. 50,000/-. Being dissatisfied, the matter was carried in appeal. However, the Commissioner (Appeals) by his order dated 17th August, 2004 partly allowed the appeal and modified the order while confirming the demand in relation to the major amount claimed thereunder. Held that- cutting repairing, installation and maintenance of plant and machinery do not form part of process of manufacturing final product although such activities are necessary to keep the plant in progress. No infirmity in impugned order which is upheld. Appeal dismissed.

Summary

Issues Involved:
1. Denial of Modvat credit for items used in maintenance and repair.
2. Retrospective applicability of Notification No. 11/95 dated 16-3-1995.
3. Interpretation of 'capital goods' under Rule 57Q of the Central Excise Rules, 1944.

Detailed Analysis:

1. Denial of Modvat Credit for Items Used in Maintenance and Repair:
The appellants challenged the order dated 17th August, 2004, passed by the Commissioner (Appeals), which confirmed the denial of Modvat credit for items like oxygen and acetylene gases used for cutting, repairing, installation, and maintenance of plant and machinery. The appellants argued that these activities are integrally connected with the manufacturing process and cited decisions from the Supreme Court in J.K. Cotton Spg. & Wvg. Mills Co. Ltd. v. Sales Tax Officer, Kanpur, and Commissioner of Central Excise, Coimbatore v. Jawahar Mills Ltd. to support their claim. However, the Departmental Representative countered that merely using items for repairs and maintenance does not equate to their use in the manufacturing process of the final product. The tribunal found that the items in question were used for installation and maintenance, not in the actual manufacturing process, and upheld the denial of Modvat credit.

2. Retrospective Applicability of Notification No. 11/95 dated 16-3-1995:
The appellants contended that under Notification No. 11/95 dated 11-3-1995, with the insertion of clauses (d) and (e), many goods would qualify as 'capital goods' and be entitled to Modvat credit. However, the Department argued that this notification was not retrospective and could not apply to the period in question (1st November, 1994 to 28th February, 1995). The tribunal agreed with the Department, noting that the notification came into force on 16th March, 1995, after the relevant period, and thus could not be applied retrospectively.

3. Interpretation of 'Capital Goods' under Rule 57Q of the Central Excise Rules, 1944:
The tribunal examined the definition of 'capital goods' under Rule 57Q, which includes machines, machinery, plant, equipment, apparatus, tools, or appliances used for producing or processing any goods or bringing about any change in any substance for the manufacture of final products. The appellants argued that the goods in question should be considered 'capital goods' as they satisfy the conditions under Rule 57Q. However, the tribunal found that during the relevant period, the items were used for installation and maintenance, not in the production or processing of the final product. The tribunal referenced the Supreme Court decision in J.K. Cotton Spg. & Wvg. Mills Co. Ltd., which clarified that goods used in processes integrally connected with the manufacture of goods fall within the expression 'in the manufacture of goods.' However, it held that activities like maintenance and repair do not form part of the manufacturing process of the final product.

In conclusion, the tribunal found no infirmity in the impugned order and dismissed the appeal, confirming that the items used for maintenance and repair do not qualify for Modvat credit as 'capital goods' under the relevant rules and that Notification No. 11/95 could not be applied retrospectively. The decision was pronounced in open court on 30th April, 2010.