2004 (6) TMI 565 - AT - Central Excise

Summary

Issues Involved: Imposition of penalty on appellants for taking Modvat credit on capital goods before installation and usage.

Detailed Analysis:

1. Imposition of Penalty: The appeal challenged the penalty imposed on the appellants for taking Modvat credit on capital goods before their installation and actual use in the factory. The show cause notice alleged that credit on capital goods is only admissible when they are installed and put to use for manufacturing the final product.

2. Appellants' Plea: The appellants contended that the requirement of taking Modvat credit after installation applies only to capital goods and not to parts of capital goods. They argued that the goods in question were parts of capital goods, not the capital goods themselves.

3. Legal Examination: The Tribunal examined Rule 57Q(2)(ii) and noted that the prohibition against taking credit does not apply to components, spares, and accessories. Since the capital goods in question were considered spares, they did not fall under the prohibition of Rule 57Q(2)(ii).

4. Judgment: The Tribunal found that the entire proceedings were based on incorrect premises, as the goods in question were classified as spares and not subject to the restriction on taking credit before installation. Consequently, the appeal was allowed, and the penalty was set aside with consequential relief as per the law.

This judgment clarifies the distinction between capital goods and their parts in the context of Modvat credit eligibility, emphasizing that the prohibition on taking credit before installation does not extend to components, spares, and accessories.