2006 (8) TMI 634 - HC - Central Excise

Summary

Issues:
Disallowance of Modvat credit/Cenvat credit in respect of capital goods used at captive mines.

Analysis:
The case involved the question of whether the order of the tribunal disallowing Modvat credit/Cenvat credit in respect of capital goods used at captive mines by the assessee could be justified. The appellant, engaged in manufacturing non-ferrous metals and holding mining rights, claimed Modvat credit for capital goods used at the mine site. The claim was denied on the grounds that the captive mines were not part of the factory. The Commissioner (Appeals) and the Tribunal upheld the denial. However, the Supreme Court's decisions in various cases clarified the issue. In J.K. Udaipur Udyog Ltd. v. CCE, the Court held that Modvat credit for inputs and capital goods used at captive mines away from the factory site was not allowed. But in subsequent cases, the Court ruled differently. In M/s Vikram Cement, it was held that inputs used at the mine site were eligible for Modvat credit. The principle was extended in Vikram Cement v. CCE to include capital goods used at captive mine sites as an integrated part of the factory.

The Court emphasized that if the mines are captive and form an integrated unit with the factory, Modvat/Cenvat credit on capital goods would be available. Conversely, if the mines supply to other companies, credit would not be available. The Tribunal was found to be in error in denying the Modvat credit to the assessee for capital goods used at the captive mine site. Therefore, the appeal was allowed, setting aside the orders of the Tribunal and lower authorities. The Court held that the assessee was entitled to avail Modvat/Cenvat credit on duty paid for capital goods and inputs used at captive mine sites, provided they were otherwise eligible for such credit. No costs were awarded in the case.