2009 (2) TMI 195 - HC - Central Excise

Cenvat Credit on Capital Goods - Carding and combing machines - used for manufacturing sliver and combed/carded cotton - scope of rule 2(a) of cenvat credit rules 2004 - The final product viz. cotton yarn was cleared on payment of duty. Thus carded/combed cotton/sliver came into existence at an intermediate stage. The Tribunal and the other authorities rightly held that the goods in question were not marketable and relying on the circular No. 665/56/2002-CX. dated 25-9-2002 held that Cenvat credit should not be denied on the capital goods used in manufacture of intermediate product exempt from payment of duty which are used captively in the manufacture of finished goods chargeable to duty held that Modvat credit of duty paid on the capital goods cannot be denied.

Summary

Issues:
1. Interpretation of Modvat credit eligibility for duty-paid capital goods/spares.
2. Determination of final product status for goods falling under specific tariff heading.

Issue 1:
The appellant argued that carding and combing machinery producing cotton falling under Chapter 52.02 should not be considered capital goods for the period before 21-10-1994. The authorities found that processed cotton during the manufacture of cotton yarn was incomplete and not marketable as an independent product. They relied on a circular stating that credit should not be denied on capital goods used in the manufacture of intermediate products. The Delhi High Court and the Supreme Court emphasized the necessity for a product to be marketable to be considered dutiable under the excise law.

Issue 2:
The judgment referred to expert reports describing the nature of "sliver" obtained in the factory, highlighting its brittleness and unsuitability for spinning if handled roughly. The courts emphasized that sliver, due to its nature, cannot be brought and sold in the market as a distinct commodity. The judgments of the Delhi High Court and the Bombay High Court provided detailed descriptions of the characteristics of sliver, reinforcing the conclusion that it does not qualify as a marketable product. Consequently, the substantial questions of law were answered against the revenue, leading to the dismissal of the civil miscellaneous appeal.