1996 (9) TMI 244 - AT - Central Excise

Summary

Issues Involved:
1. Disallowance of Modvat credit on capital goods.
2. Imposition of penalty.
3. Interpretation of Rule 57Q and Rule 57A of the Central Excise Rules, 1944.
4. Retrospective applicability of the amendment to Rule 57Q.

Summary:

1. Disallowance of Modvat Credit on Capital Goods:
The appeal challenges the order dated 12/13-7-1995 by the Commissioner of Central Excise and Customs, Jaipur, disallowing Modvat credit of Rs. 32,00,151.80 on capital goods u/r 57U of the Central Excise Rules, 1944. The Commissioner concluded that the goods in question, such as cables, load power supply, PLC panels, junction boxes, transformers, printed circuits, and other items, were not used for producing or processing any goods or for bringing about any change in any substance for the manufacture of the final product, polyester fibre. The department's interpretation was based on the definition of capital goods in Rule 57Q(1) of the Central Excise Rules, 1944.

2. Imposition of Penalty:
A penalty of Rs. one lakh was imposed on the appellants for the alleged wrongful availment of Modvat credit on the specified electrical goods and controlling instruments.

3. Interpretation of Rule 57Q and Rule 57A:
The appellants argued that the exclusion of certain inputs from Rule 57A was remedied by their inclusion in Rule 57Q. They cited the Supreme Court decision in C.C.E. v. Rajasthan State Chemical Works, which held that the process of handling and shifting chemicals with the aid of power is integral to the manufacturing process. The appellants contended that the goods in question should be considered as components, spare parts, and accessories of the plant producing staple fibre. The department, however, maintained that Rule 57Q requires a direct nexus between the use of inputs and the emergence of the final product, unlike Rule 57A, which has a broader scope.

4. Retrospective Applicability of the Amendment to Rule 57Q:
The Tribunal noted that the government had sought to clarify the scope of 'capital goods' under Rule 57Q by issuing Notification 14/96-C.E. (N.T.), dated 23-7-1996, which substituted the existing Explanation to Rule 57Q. The Tribunal held that this amendment was clarificatory in nature and could be applied retrospectively, as indicated by the Finance Minister's Budget Speech. Consequently, the appeal was disposed of by remanding the matter to the Commissioner to redetermine the eligibility of the items for Modvat credit under the amended Rule 57Q.

Conclusion:
The Tribunal directed the Commissioner to reassess the eligibility of the disputed items for Modvat credit under the clarified definition of capital goods in Rule 57Q, as per Notification 14/96-C.E. (N.T.), dated 23-7-1996, and to do so in accordance with the law and after hearing the appellants.