Case Note & Summary
The case involves an appeal by the Commissioner of Central Excise against an order of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) allowing Modvat/CENVAT credit to the assessee, M/s. Modernova Plastyles Pvt. Ltd., on moulds used for manufacturing television cabinets. The assessee was engaged in manufacturing plastic articles using injection moulding machines. The moulds were supplied by the original equipment manufacturers (OEMs) and were used to produce cabinets for television sets. The dispute pertains to the years 1997-98 and 1998-99. A show cause notice dated 27th October 1999 was issued alleging that the assessee had availed and utilized inadmissible Modvat credit of Rs. 35,49,659/- on the moulds as capital goods, in contravention of Rules 57Q, 57R(3), and 57T of the Central Excise Rules, 1944. The ground for denial was that the assessee was neither the owner of the capital goods nor had taken them on lease, hire purchase, or loan agreement. The assessee replied that after the 1994 amendment, Rules 57Q and 57R did not require ownership or lease. The Commissioner confirmed the demand, but the Tribunal allowed the appeal. The Revenue appealed to the High Court on two substantial questions of law: (1) whether the assessee is entitled to claim Modvat/CENVAT credit when capital goods are not owned/purchased nor taken on lease or hire purchase; and (2) whether the Tribunal's view was correct in light of the decision in 2001 (138) ELT 889 (Tribunal Mumbai). The High Court examined the pre- and post-amendment provisions of Rules 57Q and 57R. It noted that prior to 1994, Rule 57Q required that capital goods be owned by the assessee or taken on lease/hire purchase. However, after the amendment in 1994, the requirement of ownership or lease was deleted. The amended Rule 57Q only required that the capital goods be 'used by the manufacturer in his factory'. Similarly, Rule 57R was amended to remove the condition of ownership. The court held that the Tribunal's decision was correct and that the assessee was entitled to the credit. The court distinguished the cited decision as it pertained to the pre-amendment period. The appeal was dismissed with no order as to costs.
Headnote
A) Central Excise - Modvat/CENVAT Credit - Capital Goods - Ownership/Lease Requirement - Rule 57Q, Rule 57R, Central Excise Rules, 1944 - The assessee used moulds supplied by OEM for manufacturing TV cabinets. The Revenue denied credit on ground that assessee neither owned nor leased the moulds. The Tribunal allowed credit. The High Court upheld, holding that after amendment in 1994, Rules 57Q and 57R do not require ownership or lease/hire purchase of capital goods for availing credit. The only requirement is that the goods are used in the factory for manufacture of final products. (Paras 2-8) B) Central Excise - Modvat/CENVAT Credit - Capital Goods - Use in Manufacture - Rule 57Q, Rule 57R, Central Excise Rules, 1944 - The court held that the expression 'used by the manufacturer in his factory' in Rule 57Q does not imply ownership or lease. The credit is available if the capital goods are actually used in the manufacturing process, regardless of title. The decision in 2001 (138) ELT 889 (Tribunal) was distinguished as it pertained to pre-amendment period. (Paras 5-8)
Issue of Consideration
Whether the Respondent/Assessee is entitled to claim Modvat/CENVAT credit when capital goods are not owned/purchased nor taken on lease or hire purchase agreement?
Final Decision
Appeal dismissed. The Tribunal's order allowing Modvat credit to the assessee is upheld. No order as to costs.
Law Points
- Modvat/CENVAT credit on capital goods is admissible even if the assessee does not own the goods or has not taken them on lease or hire purchase
- provided the goods are used in the factory for manufacture of final products
- Rule 57Q
- Rule 57R
- Central Excise Rules
- 1944
