2009 (3) TMI 532 - HC - Central Excise

MODVAT Credit- The appellant availed MODVAT credit on spare parts of two chilling plants. The department rejected the credit stating that the items were covered under Chapter Heading 84.15 and were not entitled for MODVAT credit. The appellant submitted that items were covered under Chapter Heading 84.18, and this heading was not mentioned in the exclusions of admissible MODVAT Credit. Court dismissed the appeal stating that it was only a printing error that Chapter Heading 84.18 was skipped in the exclusions of admissible MODVAT Credit.

Issues Involved:
1. Eligibility of Modvat Credit for spare parts used in erecting chilling plants.
2. Interpretation of Chapter Heading 84.15 under Rule 57Q of the Central Excise Rules, 1944.

Detailed Analysis:

1. Eligibility of Modvat Credit for Spare Parts Used in Erecting Chilling Plants:
The core issue revolves around whether the spare parts used by the dealer-appellant for erecting two chilling plants qualify for Modvat Credit under Chapter Heading 84.15. The dealer-appellant, engaged in the manufacture of bulk drugs, availed Modvat Credit for parts used in the manufacture of chilling plants during the period from July 1996 to March 2001. The Adjudicating Authority issued a show cause notice, alleging that the credit of duty paid on 'capital goods' and their spares/components was not available for goods under Chapter Heading 84.15. Consequently, the Modvat Credit availed by the dealer-appellant was rejected, leading to a refund claim of Rs. 3,69,008/- being denied.

The Deputy Commissioner-cum Adjudicating Authority held that the chilling plants erected by the dealer-appellant fell under Chapter Heading 84.15, which was explicitly excluded from the definition of 'capital goods' during the relevant period. The dealer-appellant's argument that the chilling plant was essential for manufacturing pharmaceuticals/drugs was dismissed due to the express exclusion of these items from the definition of 'capital goods'.

On appeal, the Commissioner (Appeals) reversed the decision, stating that the items used in the chilling plant had different functions and were essential for manufacturing the final product. The Commissioner (Appeals) argued that without these components, the plant could not function, and the final product could not be manufactured.

2. Interpretation of Chapter Heading 84.15 under Rule 57Q of the Central Excise Rules, 1944:
The Tribunal, upon examining Rule 57Q and the definition of 'capital goods', concluded that the lawmakers intended to grant Modvat Credit on capital goods if covered under Rule 57Q. However, sub-clause (a) specifically excluded machinery under Chapter Heading 84.15 from Modvat Credit eligibility. The Tribunal noted that even if machinery was vital for manufacturing final products, if it fell under Chapter Heading 84.15, the assessee was precluded from availing Modvat Credit.

The Tribunal's analysis emphasized that the exclusion of specific headings from the definition of 'capital goods' barred the respondent from availing Modvat Credit on parts of the chilling plant falling under Chapter Heading 84.15. The Tribunal found that the case laws relied upon by the respondent's advocate were rendered during a period when the definition of 'capital goods' under Rule 57Q was different.

The High Court reviewed Rule 57Q along with the 'Table' defining 'capital goods' and noted that all goods falling under Chapter Heading 84 were covered by the expression 'capital goods', except those under sub-heading No. 84.15. The Court highlighted that sub-heading 84.15 included air conditioning machines and related parts, which were explicitly excluded from Modvat Credit eligibility.

The High Court dismissed the dealer-appellant's argument that it was covered by entry 84.18, citing a printing error in the Gazette notification dated 9-3-1997. The Court clarified that entry 84.18 was erroneously printed as 85.18, and the exclusion of entry 84.14 logically extended to 84.18, which also dealt with refrigerating equipment.

Conclusion:
The High Court upheld the Tribunal's decision, affirming that the dealer-appellant was not entitled to Modvat Credit for spare parts used in erecting chilling plants under Chapter Heading 84.15. The appeal was dismissed, reinforcing the exclusion of specific headings from the definition of 'capital goods' under Rule 57Q of the Central Excise Rules, 1944.

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