2010 (3) TMI 155 - HC - Central Excise

Cenvat / Modvat Credit - Whether or not modvat credit is available on explosives used in mining of lime stone which are covered under the definition of factory in terms of Section 2 (f) of the Central Excise Act 1944 read with Rule 57A of the Central Excise Rules 1944? Held that the assessee is entitled to avail the modvat credit on the inputs/material used in or in relation to the manufacture of the final products whether directly or indirectly and whether contained in the final product or not. - In this case the material being used for manufacture of inputs in respect of explosives is termed as machinery - the inputs used in the manufacture of intermediate products that is lime stone which subsequently used in the manufacture of cement was entitled to modvat credit.

Summary

Issues:
Whether modvat credit is available on explosives used in mining of lime stone, covered under the definition of 'factory' in terms of Central Excise Act, 1944 read with Central Excise Rules, 1944.

Analysis:
The Customs, Excise & Gold (Control), Appellate Tribunal referred a substantial question of law to the High Court regarding the availability of modvat credit on explosives used in mining of lime stone. The provisions of Rule 57-A grant incentives to manufacturers for expanding their business premises in India. Manufacturers are entitled to claim modvat credit on finished excisable goods as notified by the Central Government. Section 57B allows manufacturers to take credit of specified duty paid on inputs used in or in relation to the manufacture of final products, whether directly or indirectly, and whether contained in the final product or not. However, duty paid on machines, machinery, equipment, apparatus, tools, appliances, or capital goods is not eligible for credit.

The High Court referred to the case of Collector of Central Excise, Bangalore vs. Escorts Mahle Ltd., where the Supreme Court held that materials used in the manufacture of final products are eligible for modvat credit as inputs. In this case, the material used for manufacturing explosives is considered machinery, and even parts of machinery are eligible for modvat credit. The Court also cited the case of M/s Jaypee Rewa Cement v. Commissioner of Central Excise, M.P., where the Supreme Court held that inputs used in the manufacture of intermediate products, like lime stone for cement production, are entitled to modvat credit.

Based on the above precedents and legal provisions, the High Court concluded that the manufacturer is entitled to claim modvat credit on the inputs/material used in or in relation to the manufacture of final products, whether directly or indirectly. Therefore, the Court held in favor of the assessee, allowing them to claim modvat credit on explosives used in mining of lime stone.

This judgment clarifies the eligibility of modvat credit on specific inputs used in manufacturing processes, providing a clear interpretation of the relevant legal provisions and precedents to support the decision in favor of the assessee.