1997 (2) TMI 230 - AT - Central Excise

Summary

Issues:
1. Disallowance of Modvat credit by the Collector of Central Excise
2. Classification of testing equipment as capital goods under Rule 57Q
3. Time limitation for issuing show cause notice under Rule 57U

Issue 1: Disallowance of Modvat credit
The appeal was filed against the Collector of Central Excise's order disallowing Modvat credit of Rs. 85,53,993 taken by the appellants on testing equipment in April 1994. The Collector held that the testing equipment did not qualify as capital goods under Rule 57Q as they were not used for producing or processing goods or bringing about any change in substance for manufacturing final products. The functions of the equipment were deemed not to meet the definition of a process as per Rule 57Q, leading to the disallowance of Modvat credit.

Issue 2: Classification of testing equipment as capital goods
The appellants argued that the testing equipment was essential for programming and alignment in the manufacturing process of digital microwave radios, making them capital goods under Rule 57Q. They contended that without the equipment, the PCBs could not operate, emphasizing the importance of alignment and programming. Reference was made to a Tribunal's order in a similar case to support the claim for Modvat credit eligibility. The dispute revolved around whether the equipment's role in testing was incidental or integral to the manufacturing process, determining its classification as capital goods under Rule 57Q.

Issue 3: Time limitation for issuing show cause notice
The appellants raised a defense of time limitation, arguing that the show cause notice issued on 7-10-1994 was beyond the six-month period from the date of taking credit on 1-4-1994. The dispute centered on the starting point for computing the limitation period, with the appellants asserting that the date of taking credit should be considered. The respondent contended that the date of filing RT 12 returns should mark the beginning of the limitation period. The Tribunal ruled in favor of the appellants, stating that the notice was time-barred as it exceeded the statutory six-month limit from the date of taking credit, thereby allowing the appeal solely on the ground of time limitation.

In conclusion, the Tribunal set aside the Collector's order disallowing Modvat credit based on the time limitation issue, without delving into the merits of the classification of testing equipment as capital goods. The decision highlighted the importance of adhering to the statutory time limits for issuing show cause notices under Rule 57U, emphasizing the significance of the date of taking credit as the starting point for calculating the limitation period.