2017 (2) TMI 316 - AT - Central Excise

Reversal of MODVAT credit on defective machinery - whether the defective parts were not used therefore the credit of such defective parts which is equivalent to the CVD paid on the imported spares cannot be allowed? Held that - Credit was taken on the CVD paid on entire machine including the damaged parts as well as CVD paid on spare parts imported subsequently. In these fact the parts which got damaged and the same got removed and taken out and in place of the same new parts were fitted. Therefore, in the machine certain parts which were removed were not used in the machine. Therefore, the goods which were not used by the appellant credit of the same cannot be allowed. As regards the subsequent import of the spare which were used for replacement credit is available for the simple reason that those parts were used in the capital goods which is for further manufacture of final products. For allowing the credit it is the primary condition that goods should be used in the factory of the manufacturer in or in relation to the manufacture of final product. It is undisputed that the parts which got damaged in the capital goods, the modvat credit proportionate to said damaged parts shall not be available to the appellant as the same were not used. Extended period of limitation - Held that - there is suppression of fact on the part of the appellant therefore; demand is not hit by limitation. Appeal dismissed - decided against appellant.

Summary

Issues:
Availment of modvat credit on imported machine and spares, denial of credit by department, relevance of insurance claim, suppression of fact, limitation period for demand.

Analysis:
The case involved the appellant, engaged in manufacturing motor vehicles and parts, availing modvat credit on imported machine and spares. The imported machine was damaged in transit, requiring replacement parts imported later. The department denied credit for defective parts not used, equivalent to CVD paid on imported spares. The appellant argued for credit on both machine and spares, citing no restriction on credit for damaged capital goods and reliance on relevant case laws.

The Tribunal noted the undisputed import of capital goods for manufacturing, with damaged parts replaced by new ones. Credit was taken on CVD paid on entire machine and subsequent spares. It was held that credit for unused damaged parts was disallowed, while credit for spares used in the capital goods was allowed for further manufacturing. The decision in DCW Ltd. case was distinguished due to the repair without parts replacement. The primary condition for credit was usage in manufacturing, which damaged parts did not meet.

Regarding limitation, the Commissioner found suppression of facts by the appellant, justifying the extended period for demand. The Tribunal upheld the impugned order, dismissing the appeal due to the suppression of facts and no infirmity found in the order. The demand was deemed not hit by limitation, and the decision was pronounced in court on 27/01/2017.