2002 (1) TMI 216 - AT - Central Excise

Summary

Issues:
Denial of Modvat credit for utilizing capital goods D.G Set for distribution of power outside the factory of the manufacturer.

Analysis:
The appeal involved the denial of Modvat credit on the grounds that a D.G Set, a capital good, was used to distribute power to a neighboring industry instead of solely within the factory of the manufacturer. The appellant argued that they had purchased a higher capacity generator to avoid wastage of power and had supplied excess power to the adjacent unit to prevent wastage and keep the generator healthy. The appellant contended that since the generator was used in the factory of the manufacturer, as required by Rule 57Q(1), they were entitled to the Modvat credit. Reference was made to legal precedents such as the Supreme Court case of Jawahar Mills Ltd. and decisions of the Bombay and Allahabad High Courts to support the argument that the predominant or partial use in the factory of the manufacturer satisfied the conditions for availing Modvat credit.

The Departmental Representative argued that Rule 57R(2) introduced conditions for availing Modvat credit in respect of capital goods, specifying that credit shall be allowed only for capital goods used within the factory of production for manufacturing final products or for any other purpose. Citing Tribunal decisions in cases like SAIL v. CCE and Essar Steels Ltd. v. CCE, the Departmental Representative emphasized that inputs used for generation of electricity must be used within the factory for manufacturing final products or for any other purpose to be eligible for credit. The Departmental Representative contended that the case laws cited by the appellant were not applicable to the current situation.

The Tribunal held that while Rule 57R(2) allowed Modvat credit for capital goods used for generation of electricity within the factory of production, the phrase "for any other purpose" did not extend to using the electricity generated outside the factory. The Tribunal disagreed with the Department's argument to deny the entire Modvat credit, stating that only a proportionate credit should be disallowed for the power transferred to the neighboring unit. Therefore, the Tribunal ruled that Modvat credit was admissible on the D.G. Set to the extent power was utilized within the factory of the manufacturer, and proportionate credit should be allowed. Additionally, the Tribunal set aside the penalty and interest imposed, citing the Supreme Court decision in the case of Elgi Equipments Ltd., as the penal provisions were inserted after the cause of action had taken place.

In conclusion, the appeal was disposed of with the decision to allow proportionate Modvat credit on the capital goods used for generation of electricity within the factory of production, setting aside the penalty and interest imposed due to the retrospective nature of the penal provisions.