1998 (7) TMI 169 - AT - Central Excise

Summary

Issues:
1. Disallowance of Modvat credit without show cause notice or personal hearing.
2. Admissibility of Modvat credit on steel sheets for molasses tank under Rule 57Q.

Issue 1: Disallowance of Modvat credit without show cause notice or personal hearing
The Appellants challenged the Order of the ld. Commissioner (Appeals) disallowing Modvat credit without following principles of natural justice. The Tribunal partially allowed the appeal, stating that Modvat credit on lubricants was admissible, but steel for molasses tank did not qualify as capital goods under Rule 57Q. The adjudicating authority was directed to pass a proper speaking order in the future after ensuring principles of natural justice were followed.

Issue 2: Admissibility of Modvat credit on steel sheets for molasses tank under Rule 57Q
The Appellants, sugar manufacturers, claimed Modvat credit on steel sheets for molasses tank. The Department contended that Modvat credit was only allowed for goods covered by Rule 57Q Explanation 1(a), (b), and (c). The Appellants argued that steel sheets were parts of molasses tanks, which were used for storing molasses, a final excisable good. They cited precedents where various components were considered capital goods under Rule 57Q, supporting their claim for Modvat credit on steel sheets.

The Department countered that steel sheets were raw materials for manufacturing tanks and not parts of the tanks or equipment. Referring to a Tribunal case, it was highlighted that materials like cement and steel structurals, used for foundations, were not considered component parts of machines or plant eligible for Modvat credit. The Department argued that steel sheets for molasses tanks did not qualify as parts of tanks or equipment, hence were rightly denied Modvat credit.

After considering both arguments and case laws, the Tribunal found that steel sheets were inputs for manufacturing molasses tanks, not parts, spares, or equipment for the tanks. None of the cited cases by the Appellant related to inputs used in manufacturing goods. The Tribunal concluded that steel sheets were neither parts of molasses tanks nor equipment, plant, machinery, or their parts. Consequently, the Tribunal rejected the appeal, upholding the disallowance of Modvat credit on steel sheets for molasses tanks under Rule 57Q.