2014 (1) TMI 1517 - HC - Central Excise

Availment of CENVAT Credit - Whether the items Panel Board and PVC Cables which do not participate in the manufacturing process can be said to fall within the definition of Capital goods under Rule 57 Q of the Central Excise Rules, 1944, at the relevant time and accordingly availed credit as provided under the said Rule - Held that - goods which are mentioned in the question referred to us would come within the term capital goods envisaged in this provision and therefore the assessee is entitled for the MODVAT credit on these items. Indeed the definition of capital goods is comprehensive in nature and therefore we do not have any scintilla of doubt in our mind that Panel Board and PVC cables which do not participate in the manufacturing process and are only 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 included in capital goods and hence the assessee is entitled for MODVAT credit on these items - Following decision of CCE v. Jawahar Mills Ltd. 2001 (7) TMI 118 - SUPREME COURT OF INDIA - Decided against Revenue.

Summary

Issues:
Interpretation of the term "capital goods" under Rule 57 Q of the Central Excise Rules, 1944 for MODVAT credit eligibility.

Analysis:
The High Court of Madhya Pradesh addressed the issue of whether items like Panel Board and PVC Cables, which do not directly participate in the manufacturing process but are used for producing or processing goods, fall within the definition of "capital goods" under Rule 57 Q of the Central Excise Rules, 1944. The Central Excise and Gold (Control) Appellate Tribunal (CEGAT) referred this question to the court for consideration. The Revenue argued that these items do not qualify as "inputs" under Rule 57 and thus the assessee is not entitled to MODVAT credit on them. However, the court examined the definition of "capital goods" under Rule 57 Q, which includes machinery, equipment, components, spare parts, and accessories used for producing goods or bringing about changes in substances for manufacturing final products. The court concluded that Panel Board and PVC Cables, although not directly involved in the manufacturing process, are essential for producing or processing goods, making them eligible for MODVAT credit as "capital goods."

The court relied on the decision in CCE v. Jawahar Mills Ltd., where the Supreme Court clarified that a broad range of items, including power cables, capacitors, control panels, and electric wires, can be considered "capital goods" if used for specific purposes outlined in Rule 57 Q. The Supreme Court's interpretation emphasized the liberal language of the Explanation in defining capital goods, allowing for a wide range of items to qualify for MODVAT credit. Applying this precedent to the case at hand, the court held that Panel Board and PVC Cables fall within the ambit of "capital goods" and are eligible for MODVAT credit, contrary to the Revenue's argument.

Based on the Supreme Court's ruling and the comprehensive definition of "capital goods," the court ruled in favor of the assessee, stating that the MODVAT credit facility is applicable to the items in question. Consequently, the court answered the referred question in the negative against the Revenue and in favor of the assessee, disposing of the reference accordingly.