1997 (8) TMI 205 - AT - Central Excise

Summary

Issues:
1. Interpretation of Rule 57Q regarding the utilization of Modvat credit on capital goods.
2. Whether Modvat credit can be taken and utilized before installation of capital goods.
3. Applicability of Board Circulars in determining Modvat credit utilization.
4. Penalty imposition under Rule 173Q of the Central Excise Rules, 1944.

Analysis:

Issue 1: Interpretation of Rule 57Q regarding the utilization of Modvat credit on capital goods.

The ld. Collector held that Rule 57Q specifies that Modvat credit can only be utilized on capital goods "used" as provided under Rule 57Q(1), meaning the goods must be installed in the factory for manufacturing activities. Utilization of credit before installation is not permitted. The Collector emphasized that the credit accrued is available only on capital goods that are actually used in the manufacturing process. The incorrect utilization of Modvat credit on capital goods not yet installed was deemed a violation of the law, leading to disallowance and recovery under Rule 57U of the Central Excise Rules, 1944. The Collector imposed a penalty under Rules 173Q and 209, considering the party's tax compliance history.

Issue 2: Whether Modvat credit can be taken and utilized before installation of capital goods.

The appellants argued that Rule 57T allows for taking Modvat credit on capital goods without specifying that credit can only be taken after installation. They contended that Rule 57Q's requirement of "capital goods used by the manufacturer in his factory" does not mandate actual usage before credit utilization. The appellants cited the Modvat scheme's historical application and the absence of objections from the Department regarding credit utilization before installation. They relied on a Tribunal case distinguishing the necessity of actual usage before credit utilization. The appellants sought to set aside the order based on these arguments.

Issue 3: Applicability of Board Circulars in determining Modvat credit utilization.

The ld. Counsel referenced Board Circulars clarifying that Modvat credit on capital goods can be availed and utilized immediately, even if the goods were not yet in production. The Circular distinguished between new factories and existing units, permitting immediate credit utilization for the latter. The Circular aimed to provide clarity on the timing of credit utilization based on the date of goods receipt. The Counsel argued that the Circular's provisions supported the appellants' position on Modvat credit utilization.

Issue 4: Penalty imposition under Rule 173Q of the Central Excise Rules, 1944.

The penalty of Rs. 17,000 was imposed under Rule 173Q on the party for the incorrect utilization of Modvat credit on capital goods not yet installed. The ld. Collector considered the party's tax compliance history in determining the penalty amount. The party's violation of the law by utilizing credit on goods not used for manufacturing activities led to the penalty imposition. Despite the penalty, the Collector took a lenient view due to the party's overall compliance record.

In conclusion, the Appellate Tribunal allowed the appeal, holding that Modvat credit can be taken and utilized on capital goods in existing factories where specified final products are manufactured and cleared. The Tribunal's decision was based on the interpretation of Rule 57Q, historical application of the Modvat scheme, and the clarity provided by Board Circulars regarding credit utilization timing. Consequential relief was granted to the appellant in accordance with the law.