1997 (3) TMI 313 - AT - Central Excise

Summary

Issues:
Grant of Modvat credit under Rule 57Q for Diesel Engine used with an alternator for electric current generation for captive consumption.

Analysis:
The lower appellate authority held that the Diesel Engine used in conjunction with a generator for running plants, which is essential for the manufacturing process of the final product, qualifies as a capital good under Rule 57Q. The authority emphasized that without the Diesel Engine, the manufacturing process of the final product would not be possible. The appellant Collector argued that prior to a specific notification in 1995, only certain capital goods were covered under Rule 57Q, and the Diesel Engine in question was received before this date, thus contravening the rule. The appellant contended that the amendment to Rule 57S should not override the provisions of Rule 57Q, which restrict credit to specific capital goods conforming to the rule's explanation.

The Department's representative argued that the Tribunal previously held that certain equipment, like Fork Lifts, could only qualify for Modvat credit if they were integral to the manufacturing process of the finished product. The representative stressed the importance of considering the integrality of the manufacturing process before allowing Modvat credit. The Tribunal, in previous cases, emphasized that the use of equipment must be essential for the manufacturing process of the notified finished product to qualify for Modvat credit. The Tribunal highlighted that the Modvat Scheme should be viewed as an integrated scheme, and the use of capital goods must be in or in relation to the manufacture of the final product to be eligible for credit.

The Tribunal, in its own previous orders, clarified the interpretation of capital goods under Rule 57Q. It emphasized that the equipment used must be part of the manufacturing stream and essential for production, processing, or bringing about a change in materials used for the final product. The Tribunal referred to a Supreme Court case where handling was considered a process integral to manufacturing, emphasizing that the equipment's use must be indispensable for manufacturing the final product in the factory. The Tribunal remanded the matter to the lower authority for further examination based on these principles.

In a separate case regarding the use of Fuel Oil for electricity generation, the Tribunal held that the generation of electricity could not be considered an input for Modvat credit unless it was an integral part of the manufacturing process of the notified finished product. The Tribunal dismissed the appeal, stating that electricity generation for ferro alloys manufacturing did not qualify for Modvat credit. The Tribunal emphasized that the focus should be on the manufacturing process of the specific product to determine the eligibility of an input for Modvat credit.

In conclusion, the Tribunal set aside the lower authority's order and remanded the matter for re-examination in light of the integrality of the manufacturing process and the specific criteria for qualifying as a capital good under Rule 57Q. The Tribunal stressed the importance of considering whether the equipment in question is essential for the manufacturing process of the notified finished product to determine eligibility for Modvat credit.