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2016 (9) TMI 369 - AT - Central Excise


Issues Involved:
1. Admissibility of Modvat credit on capital goods installed and commissioned on 16.09.1997.
2. Applicability of the compounded levy scheme under Section 3A of the Central Excise Act, 1944.
3. Interpretation and application of Rule 57Q(1), Rule 57Q(7), and Rule 57S(11) of the Central Excise Rules, 1944.
4. Reliance on judicial precedents and CBEC circulars.

Issue-wise Detailed Analysis:

1. Admissibility of Modvat Credit on Capital Goods Installed and Commissioned on 16.09.1997:
The Revenue argued that the appellant took Modvat credit on capital goods which started commercial production on 16.09.1997. According to the amended Sr.No.(1) of Table contained in Rule 57Q(1) of the Central Excise Rules, 1944, capital goods credit was excluded for goods used in the manufacture of Non-Alloy Steel Ingots and billets. The appellant submitted a Modvat declaration for credit on capital goods received up to 31.07.1997 amounting to ?23,23,786.68 and also received capital goods after 31.07.1997 involving Modvat credit of ?89,921/-. The total disputed credit was ?24,13,708.68.

2. Applicability of the Compounded Levy Scheme under Section 3A of the Central Excise Act, 1944:
The Revenue contended that on the date of installation, the compounded levy scheme was applicable to the appellant, thus disallowing capital goods credit. Rule 57S(11) stated that any unutilized credit as of 01.08.1997 would lapse and could not be used. The compounded levy scheme was in effect from 01.09.1997 to 31.03.2004, during which capital goods credit was not permissible as per CBEC Circular No.522/18/2000 dated 31.03.2000.

3. Interpretation and Application of Rule 57Q(1), Rule 57Q(7), and Rule 57S(11) of the Central Excise Rules, 1944:
Rule 57Q(7) specified that credit on capital goods received after 01.01.1996 could not be taken before their installation or use in manufacturing excisable goods. Rule 57S(11) mandated that any unutilized credit as of 01.08.1997 would lapse for manufacturers of specified steel products under the compounded levy scheme. The amendments to Sr.No.1 of Table to Rule 57Q(1) and Rule 57S(11) were made simultaneously under Notification No. 33/97-C.E.(N.T.) dated 01.08.1997, indicating legislative intent to disallow credit during the compounded levy period.

4. Reliance on Judicial Precedents and CBEC Circulars:
The respondent relied on CBEC Circular No.345/2/2000-TRU dated 29.08.2000 and the Supreme Court's decision in Eicher Motors Ltd. v. Union of India, arguing that capital goods credit was admissible. However, the Revenue countered with case laws such as Tijiya Steel (P) Ltd. v. CCE, Kolkata-II and Coral Cosmetics Ltd. v. Union of India, which disallowed such credit. The Bombay High Court in Coral Cosmetics Ltd. distinguished the Eicher Motors case, noting that subsequent legislative amendments had addressed the lacuna identified by the Supreme Court.

Judgment:
The Tribunal observed that the legislative intent was to disallow Modvat credit for capital goods during the compounded levy period and that any unutilized credit before this period would lapse. The First Appellate Authority's reliance on Eicher Motors was misplaced due to subsequent legislative changes. The Tribunal set aside the First Appellate Authority's order and restored the Adjudicating Authority's order, disallowing the Modvat credit of ?24,13,708.68. The appeal filed by the Revenue was allowed, and the cross-objection was disposed of.

Conclusion:
The Tribunal concluded that the Modvat credit on capital goods was not admissible during the compounded levy period, and any unutilized credit as of 01.08.1997 would lapse. The appeal by the Revenue was upheld, and the order of the First Appellate Authority was set aside.

 

 

 

 

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