2017 (9) TMI 1318 - HC - Central Excise

MODVAT/CENVAT credit - capital goods/spares namely carding and combing machines producing final products, viz., sliver/combed/carded cotton - Held that - similar issue decided in the case of Commissioner of Central Excise v. Thuran Spinning Mills Pvt. Ltd., Vadasandur and another 2013 (12) TMI 1608 - MADRAS HIGH COURT , where it was held that relief should not be denied on the capital goods used in the manufacture of intermediate products exempt from payment of duty which were used captively in the manufacture of finished goods chargeable to duty - credit allowed - appeal dismissed - decided against Revenue.

Summary

Issues:
1. Modvat Credit eligibility for duty paid on capital goods/spares.
2. Interpretation of Rule 57Q of the Central Excise Rules, 1944.
3. Application of legal provisions regarding capital goods eligibility.

Analysis:

Issue 1: Modvat Credit eligibility for duty paid on capital goods/spares
The appeal raised the question of whether the CESTAT was correct in allowing Modvat Credit for duty paid on capital goods/spares, specifically carding and combing machines producing final products under Chapter Heading 52.02 of the Central Excise Tariff Act, 1985. The appellant challenged this allowance, arguing that these goods were ineligible as capital goods under the erstwhile Rule 57Q of the Central Excise Rules, 1944. The High Court referred to previous decisions, including the case of Commissioner of Central Excise v. Thuran Spinning Mills Pvt. Ltd., Vadasandur, where it was held that the assessee was entitled to Modvat Credit for duty paid on such capital goods/spares, even if they were excluded from the purview of capital goods under Rule 57Q.

Issue 2: Interpretation of Rule 57Q of the Central Excise Rules, 1944
The interpretation of Rule 57Q of the Central Excise Rules, 1944, was crucial in determining the eligibility of capital goods for Modvat Credit. The High Court considered the specific exclusion of Chapter Heading 52.02 goods from the definition of capital goods under Rule 57Q. However, based on previous judgments, including the case of Commissioner of Central Excise v. Singaravelar Spinning Mills (P) Ltd., it was established that the denial of Modvat Credit based on this exclusion was not justified. The Court emphasized that the relief should not be denied on capital goods used in the manufacture of intermediate products exempt from duty but utilized in the production of finished goods subject to duty.

Issue 3: Application of legal provisions regarding capital goods eligibility
The Court extensively analyzed the application of legal provisions concerning the eligibility of goods as capital goods for Modvat Credit. Referring to Circular No.665/666 2002-CX and previous judicial decisions, the High Court reiterated that the denial of Modvat Credit for duty paid on capital goods/spares, such as carding and combing machines, was not warranted. The Court upheld the decisions that supported the assessee's entitlement to such credit, emphasizing the importance of considering the actual usage of the goods in the manufacturing process rather than mere technical classifications under the Central Excise Rules.

In conclusion, the High Court dismissed the appeal, affirming the decision to allow Modvat Credit for duty paid on the disputed capital goods/spares, in line with established legal interpretations and precedents.