1998 (7) TMI 332 - AT - Central Excise

Summary

Issues:
Whether the benefit of Modvat credit on welding electrodes used in the manufacture of capital goods inside the factory is permissible under Rule 57D(2) or not.

Analysis:
The case involved a dispute regarding the eligibility of Modvat credit on welding electrodes used in the manufacture of capital goods inside the factory. The respondents had declared the purpose of the inputs under Rule 57G. A show cause notice was issued questioning the Modvat credit on the inputs, stating they were used in the fabrication of a recausticising plant, not directly related to paper production. The original authority denied the Modvat credit, citing a case law where the recausticising plant was considered non-dutiable. On appeal, the lower authority ruled in favor of the respondents, stating the welding electrodes were used in the manufacture of goods and machinery. The Revenue appealed, arguing that the welding electrodes were not used in the manufacture of the final product, paper. The respondents contended that Rule 57D(2) allowed credit for inputs used in the manufacture of capital goods, emphasizing that the welding electrodes were used in the fabrication of the recausticising plant.

The Revenue maintained that welding electrodes were not used in the manufacture of the final product as defined in Rule 57Q. The respondents argued that denying Modvat credit would render Rule 57D(2) meaningless, as it allowed credit for inputs used in the manufacture of capital goods. The Tribunal noted that the welding electrodes were indeed used in the fabrication of the recausticising plant, which ultimately contributed to the manufacture of the final product, paper. The Tribunal emphasized that Rule 57D(2) treated inputs used in the manufacture of capital goods or intermediate goods equally, considering them as used in or in relation to the manufacture of final products. Therefore, the welding electrodes were deemed eligible for Modvat credit under Rule 57A.

In conclusion, the Tribunal dismissed the Revenue's appeal, affirming that welding electrodes were entitled to the benefit of Modvat credit as inputs under Rule 57A.