2012 (7) TMI 636 - HC - Central Excise

Disallowance of cenvat credit on the CNC wire cut machine on the ground that it is used for manufacture of intermediary products and not the final products Held that - Capital goods can be machines, machinery, plant, equipment, apparatus, tools or appliances. Any of these goods if used for producing or processing of any goods or for bringing about any change in any substance for the manufacture of final product would be Capital goods , and therefore, qualify for availing Modvat credit - appellant is entitled to Modvat Credit under Rule 57Q of the Rules - in favour of the appellant

Summary

Issues:
1. Entitlement to Modvat credit under Rule 57Q of the Central Excise Rules, 1994 for the purchase of a CNC wire cut machine used for manufacturing intermediary products.

Analysis:
1. The appellant purchased a CNC wire cut electric discharge machine and filed a declaration under Rule 57(T)(1) of the Central Excise Rules, 1944. The Assistant Commissioner denied Modvat credit as the machine was used for manufacturing dyes and tools, which were intermediary products, not the final products of stamping and lamination. A penalty and interest were imposed.

2. The Tribunal initially remanded the case, and in subsequent rounds, it was held that the machine did not qualify as 'capital goods' under the original Explanation to Rule 57Q. However, subsequent amendments broadened the definition of 'capital goods.'

3. The Tribunal concluded that the machine was used for manufacturing intermediary products (dyes/tools) and not final products, thus denying the appellant Modvat credit. The Tribunal's decision was based on the interpretation of the term 'capital goods' and its usage in the manufacturing process.

4. The Court analyzed Rule 57Q and the Explanation, emphasizing that the machine in question was used for producing or processing goods, bringing about changes in substances for the manufacture of final products. The process of manufacturing dyes/tools was an integral part of producing laminates and stampings, constituting a continuous and inseparable chain towards the final products.

5. Referring to a Supreme Court judgment, the Court reiterated the broad definition of 'capital goods' encompassing machines, machinery, plant, equipment, apparatus, tools, or appliances used in production or processing for the manufacture of final products. The legislative intent was to provide a liberal interpretation of 'capital goods.'

6. Ultimately, the Court held that the appellant was entitled to Modvat credit under Rule 57Q, as the machine met the criteria of 'capital goods' and was used in the manufacturing process for the final products. The judgment favored the appellant, rejecting the Revenue's contention.

7. The decision answered the substantial question of law in the negative, in favor of the appellant, and against the Revenue. The appeal was disposed of with no costs incurred by either party.