1999 (3) TMI 264 - AT - Central Excise

Summary

Issues:
- Availability of Modvat credit under Rule 57Q on Cone Winding Machine used in yarn manufacture.
- Interpretation of "in the factory of the manufacturer" under Rule 57Q.

Analysis:
- The appeal concerns the availability of Modvat credit under Rule 57Q on a Cone Winding Machine used in yarn manufacturing. The machine was initially received by one unit of the manufacturer, where the final yarn product is made. Subsequently, due to operational reasons, the machine was shifted to a separate subsidiary unit of the same manufacturer. The key contention is whether the first receiving unit is eligible for the Modvat credit despite the machine being moved to another factory of the same manufacturer. The appellant argues that since the machine is used in the process resulting in the final product at the first unit, Modvat credit should be available to that unit. Reference is made to the case of Bajaj Tempo Limited to support this position.

- The opposing view presented by the JDR is that the separate identity of the units under Central Excise Law, with distinct registration numbers, precludes the subsidiary unit from claiming the Modvat credit for the machine installed at a different location. The interpretation of "in the factory of the manufacturer" is crucial, with emphasis placed on the specific wording of Rule 57Q. It is argued that the capital goods must be installed in the factory where the final product emerges for Modvat credit eligibility, as indicated by the use of the definite article "the" in the rule. The distinction between inputs and capital goods is highlighted to assert that the credit availability is limited to the factory where the capital goods are installed.

- The judgment delves into the core components of Rule 57Q for Modvat credit eligibility on capital goods. It is established that the Cone Winding Machine qualifies as capital goods under the rule. However, the decisive factor is the requirement that the capital goods must be used in the manufacture of the final product in the factory where the product is made. The use of the definite article "the" in the rule signifies a specific factory, indicating that the capital goods must be installed at the location where the final product emerges. The judgment emphasizes the importance of the capital goods being instrumental in the production process, limiting the credit availability to the factory where they are installed. Consequently, the appeal is dismissed as there is no basis to overturn the Order-in-Appeal.