2011 (2) TMI 1345 - HC - Central Excise

Whether the Tribunal is correct in extending Modvat credit under Rule 57Q on capital goods used outside the factory of the manufacturer which is an unregistered premises ignoring the stipulation under Rule 57S(1)(i) that the capital goods should be used within the factory of manufacture of final product and ordering refund of duty paid at the time of removal of capital goods from their factory? Held that - The salient points noted in the report of the Commissioner established beyond doubt that the capital goods were used in the factory of the respondent for the purpose of manufacture of final products. When the above said conclusion was inevitable as held by the Tribunal the respondent was entitled to avail Modvat credit duty paid on the capital goods concerned. Consequently the order of the Tribunal cannot be faulted. The question of law is therefore answered in the negative and the appeal stands dismissed

Summary

Issues:
Extension of Modvat credit on capital goods used outside the factory of the manufacturer. Interpretation of Rule 57Q and Rule 57S(1)(i).

Analysis:

Issue 1: Extension of Modvat credit on capital goods used outside the factory
The appellant, Commissioner of Central Excise, Coimbatore, challenged the Tribunal's decision allowing Modvat credit for capital goods used outside the factory of the manufacturer. The respondent shifted machinery from their registered factory to an unregistered unit, Mother Roll Plant, situated 500 meters away. The original authority and Commissioner held that Rule 57Q(1) requires capital goods to be used within the factory of manufacture of final products. However, the Tribunal, after reviewing the Commissionerate's report, considered the Mother Roll Plant as part of the main factory. The report highlighted that all processes in the Mother Roll Plant were for manufacturing activities in the main factory, and the plant was solely owned and controlled by the appellants. The Tribunal concluded that the capital goods were used in the factory of production of final products, allowing Modvat credit under Rule 57Q.

Issue 2: Interpretation of Rule 57Q and Rule 57S(1)(i)
The Tribunal's decision was supported by a similar case precedent where a comparable view was taken. Rule 57Q(1) mandates that capital goods must be used in the factory of the manufacturer of final products. The Tribunal's finding that the capital goods were used for manufacturing final products in the registered factory was deemed valid. The Commissioner's report established that the capital goods were indeed used for manufacturing activities in the factory, and there was no alienation of goods to any external entity. Consequently, the Tribunal's decision to allow Modvat credit for duty paid on the capital goods was upheld, and the appeal was dismissed. The judgment emphasized that the respondent had satisfactorily demonstrated the usage of capital goods in the manufacturing process of final products within their factory.

In conclusion, the Court affirmed the Tribunal's decision, stating that the respondent was entitled to avail Modvat credit for the duty paid on the capital goods used in their manufacturing activities. The judgment clarified the interpretation of Rule 57Q and highlighted the importance of establishing the usage of capital goods in the factory for the manufacture of final products to claim such credits.