1996 (6) TMI 238 - AT - Central Excise

Summary

Issues:
Interpretation of Rule 57Q and Rule 57S regarding Modvat credit availability and utilization.

Analysis:
The appellant sought dispensation of pre-deposit of duty amounting to Rs. 33,98,542. The appellant's counsel argued that they had received capital goods eligible for Modvat credit under Rule 57Q and had taken credit of the duty in their books. They utilized part of the credit for paying duty on finished products before the capital goods were put to use in their factory. The counsel contended that the authorities incorrectly interpreted Rule 57Q and Rule 57S, stating that the credit could only be used after the capital goods were in use for manufacturing the notified product. The counsel highlighted that a harmonious reading of the rules indicated that the Modvat credit was instantly available upon receipt of goods. The counsel also mentioned a subsequent amendment stating that credit could not be taken for capital goods unless they were installed or used in production, which was effective from 1-1-1996. The counsel argued that prior to this amendment, instant credit was permissible upon receipt of goods.

The department's representative argued that Modvat credit was only available when the capital goods were used in the factory, despite being taken upon receipt. The representative considered the later notification as clarificatory. The appellant's consultant clarified that the capital goods had been put to use after utilizing Modvat credit between July and October 1995. The authorities had directed to freeze the credit until machinery installation in the factory, but the consultant stated that the credit reversal would now be impractical.

Upon considering both arguments, the tribunal noted that at the time of taking credit, the law was unamended. They observed that Rule 57Q implied that while credit could be taken upon goods' receipt, it could only be utilized after being put to use. The subsequent notification was deemed clarificatory. The tribunal interpreted the Modvat credit scheme as intended to address duty cascading, particularly for long-life capital goods used over time for production. They agreed with the lower authority's interpretation of Rule 57Q and Rule 57S in the context of the case. Since the capital goods were in use, the tribunal ruled that Modvat credit was available from machinery installation, allowing dispensation of pre-deposit. They suggested penal action if warranted, emphasizing that justice would be served by allowing the appeal and dispensing with the duty pre-deposit during the appeal process.