1997 (9) TMI 311 - AT - Central Excise

Issues Involved:
1. Disallowance of Modvat credit on refractory materials and other items under Rule 57Q.
2. Eligibility of Poly Vinyl Alcohol for Modvat credit under Rule 57H(1B).
3. Eligibility of air compressors for Modvat credit under Rule 57Q.

Detailed Analysis:

1. Disallowance of Modvat Credit on Refractory Materials and Other Items Under Rule 57Q:
The primary issue in Appeal No. E/1650/97-NB revolves around the admissibility of Modvat credit under Rule 57Q on refractory materials and other items classified under Chapters 69, 39, and 38 of the Central Excise Tariff Act. The appellants argued that these materials are essential for the manufacturing process of glass fibre, specifically in the electric melt furnace. They contended that refractory materials should be considered as capital goods under Rule 57Q, as they protect the furnace from high temperatures and corrosion, which is crucial for the manufacturing process.

The Assistant Commissioner had earlier rejected this contention, citing that refractories do not actively participate in the production process and thus do not fall under the definition of capital goods as per Rule 57Q. The Commissioner (Appeals) upheld this view, noting that refractory materials were added to Rule 57Q only from 16-3-1995 and hence were not eligible for Modvat credit prior to this date.

However, the Tribunal found merit in the appellants' argument, stating that the amendment to Rule 57Q on 16-3-1995 was clarificatory in nature and not a new addition. The Tribunal held that refractory materials used for insulating furnaces should be considered as capital goods even before 16-3-1995. Therefore, the appellants' claim for Modvat credit on refractory materials under Chapters 69, 39, and 38 was deemed admissible.

2. Eligibility of Poly Vinyl Alcohol for Modvat Credit Under Rule 57H(1B):
In Appeal No. E/1651/97-NB, the issue concerned the claim of Modvat credit on Poly Vinyl Alcohol received in December 1994, with the declaration under Rule 57G made on 18th March 1995. The Collector (Appeals) disallowed the credit on the grounds that the declaration should have preceded the receipt of goods and taking of credit.

The appellants argued that the Assistant Collector had considered the declaration under Rule 57H(1B), which overrides Rule 57G. The Tribunal agreed with the appellants, citing a previous decision (C.C.E. v. Om Forging and Engineering Pvt. Ltd.) that inputs received before the declaration should be treated as received immediately before making the declaration. Thus, the Tribunal set aside the impugned order and allowed the appellants' claim for Modvat credit on Poly Vinyl Alcohol under Rule 57H(1B).

3. Eligibility of Air Compressors for Modvat Credit Under Rule 57Q:
The appellants also contested the disallowance of Modvat credit on air compressors used for air conditioning and refrigeration purposes. The lower authorities had disallowed the credit, stating that only compressors not used for refrigeration and air conditioning applications are eligible under Rule 57Q(1)(d).

The Tribunal upheld the lower authorities' decision, noting that the appellants failed to provide evidence to counter the finding that the compressors were used for refrigeration applications. Consequently, the claim for Modvat credit on air compressors was rejected.

Conclusion:
1. Appeal No. E/1650/97-N.B.: The Tribunal allowed the appeal, setting aside the impugned order and granting Modvat credit for refractory materials under Chapters 69, 39, and 38.
2. Appeal No. E/1651/97-N.B.:
- The Tribunal set aside the impugned order disallowing Modvat credit on Poly Vinyl Alcohol and refractory materials, allowing the appellants' claim under Rule 57Q.
- The Tribunal rejected the appellants' claim for Modvat credit on air compressors, confirming the lower authorities' findings.

Order:
- Appeal No. E/1650/97-N.B.: Allowed, setting aside the impugned order.
- Appeal No. E/1651/97-N.B.:
- Modvat credit on Poly Vinyl Alcohol and refractory materials allowed.
- Modvat credit on air compressors disallowed.

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