1998 (8) TMI 301 - AT - Central Excise

Modvat - Capital goods received through dealer and not directly consigned by the manufacturer

Summary

Issues: Modvat credit on diesel engines under Rule 57T of the Central Excise Rules, 1944.

In this case, the issue revolved around the Modvat credit claimed by M/s. Madanganj Marbles Pvt. Ltd. in relation to diesel engines under Rule 57T of the Central Excise Rules, 1944. The dispute arose as the diesel engine set was not directly received from the manufacturers but through dealers. The Asst. Collector disallowed the Modvat credit due to non-compliance with the requirement of direct receipt from manufacturers. The Commissioner of Customs (Appeals), however, allowed the credit based on substantial compliance of the law. The key contention was whether the receipt of capital goods through dealers instead of manufacturers fulfilled the statutory requirements for claiming Modvat credit.

The Tribunal noted that during the relevant period, manufacturers were mandated to file a declaration with the Asst. Collector of Central Excise for claiming duty credit on capital goods under Rule 57Q. It was established that the diesel engines were received from dealers and not directly from the manufacturers, as required by the law. The Tribunal acknowledged that the compliance with the provision of direct receipt from manufacturers was essential, especially considering the specific conditions under Rule 57T. The Tribunal highlighted that the Commissioner of Customs (Appeals) failed to adequately address the provisions of Rule 57T and instead focused on the substantial compliance aspect without clarifying the issue of direct receipt from manufacturers.

The Revenue contended that the proviso to Rule 57T(3) at the relevant time stipulated that no credit of duty paid on capital goods would be allowed unless directly consigned by the original manufacturer and received at the factory premises of the Modvat credit user. The Revenue argued that the diesel engine sets were received through dealers, violating the statutory requirement of direct receipt from manufacturers. It was emphasized that compliance with this statutory requirement was not merely procedural but substantive, and any violation thereof precluded the benefit of credit. The Commissioner (Appeals) was criticized for not adequately addressing the proviso to Rule 57T(3) and for deeming the violation as a procedural lapse rather than a substantive non-compliance with the law.

Ultimately, the Tribunal disagreed with the Commissioner of Customs (Appeals) and allowed the Revenue's appeal. The Tribunal held that the direct receipt of capital goods from manufacturers, as mandated by Rule 57T, was a substantive legal requirement, and the failure to comply could not be considered a mere procedural error. Consequently, the Modvat credit on the diesel engines was disallowed, amounting to Rs. 37,696.