2005 (12) TMI 16 - AT - Central Excise

Central Excise - Modvat credit (1) Job work (2) Credit on capital goods (3) Exempted goods - HELD THAT - It was observed that, in the special procedure laid down under Rule 57F (3), duty did not get paid at the job worker's end at the time of clearance of goods, but ultimately got paid at the principal manufacturer's end. In other words, assessable value of the goods cleared by the job worker without payment of duty to the principal manufacturer would ultimately become an ingredient of the assessable value of the final product cleared by the latter on payment of duty. Thus, duty gets paid on the job-worked goods at a later stage and, therefore, such goods cannot be categorized as exempted goods for purposes of Rule 57C or Rule 57R. Thus, the Larger Bench decision in Sterlite Industries (I) Ltd. Vs. Commissioner 2004 (12) TMI 108 - CESTAT, MUMBAI , operates in favour of the respondents. In the instant case, it has been submitted on behalf of the respondents that the capital goods in question might be used, at some time in future, for manufacturing piston valves or other parts of IC Engine otherwise than on job work basis and the products so manufactured might be cleared on payment of duty. In such an eventuality, the capital goods in question would be eligible for Modvat credit. Then alone will the credit in question be utilized. In the event of the respondents not using the capital goods for manufacture of dutiable goods at any time in future or closing down their factory, the credit would lapse. These submissions of learned Consultant are acceptable. In the result, the impugned order gets affirmed and this appeal is dismissed.

Summary

Issues:
1. Eligibility of Modvat credit under Rule 57Q for capital goods exclusively used for manufacturing exempted goods.
2. Interpretation of whether piston valves qualify as exempted goods under Rule 57R.
3. Application of Tribunal's decisions in Sterlite Industries and Ispat Metallics Ltd.
4. Definition of "used" in the context of capital goods eligibility for credit.

Analysis:
1. The case involved the eligibility of Modvat credit under Rule 57Q for capital goods exclusively used for manufacturing goods exempted from duty. The Revenue contended that the capital goods used for manufacturing piston valves, cleared without duty payment, were exclusively used for exempted goods, thus not eligible for credit. The original authority upheld this, but the Commissioner (Appeals) reversed it, leading to the present appeal.

2. The key issue was whether piston valves qualified as exempted goods under Rule 57R, impacting Modvat credit eligibility. The Tribunal examined if the valves, cleared without duty payment to the principal manufacturer, fell under the definition of "exempted goods." The Larger Bench decision in Sterlite Industries was cited by the Revenue, while the respondents relied on the same decision in their favor and the Ispat Metallics Ltd. case.

3. The Tribunal analyzed the Sterlite Industries decision, which clarified that job-worked goods were not considered exempted goods under Rule 57C. The duty on such goods was paid by the principal manufacturer, making them ineligible for the "exempted goods" category. This interpretation favored the respondents' case, as the duty ultimately got paid at a later stage.

4. The definition of "used" in the context of capital goods eligibility for credit was crucial. The Ispat Metallics Ltd. decision highlighted that the term "used" did not require actual current use but included potential future use. If the capital goods could be used in the future for manufacturing dutiable goods, the credit would be valid. The Tribunal accepted the respondents' argument that the capital goods might be used for dutiable goods in the future, ensuring credit utilization.

In conclusion, the Tribunal affirmed the impugned order, dismissing the appeal and emphasizing that the capital goods' potential future use for dutiable goods supported the respondents' eligibility for Modvat credit.