Modvat credit on capital goods depends on installation or actual use; denial and penalty were unsustainable on the facts.

Rule 57Q allowed Modvat credit on capital goods only after installation or actual use in manufacture, with that factual position to be certified by the manufacturer or authorised person. A circular confirmed that credit on machines and machinery could not be taken before installation or use. On the facts, the Band Building Machine and the Triplex Extrusion Line Machine were credited after installation, and installation certificates supported those dates. The adjudicating authority wrongly preferred a 3CD report and relied on another statute to deny the credit. The Modvat credit was therefore admissible, and the denial of credit and the linked penalty were unsustainable.

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Issues: Whether Modvat credit on capital goods was inadmissible because it was taken before the machines were put to use, and whether the penalty based on that denial could be sustained.

Analysis: Rule 57Q permitted credit only after the capital goods were installed or, as the case may be, used for manufacture of excisable goods, with the relevant fact to be certified by the manufacturer or his designate. The circular clarified that for machines and machinery used for manufacture, credit could not be taken until installation or actual use. On the facts, credit on the Band Building Machine was taken after installation, and the same was true for the Triplex Extrusion Line Machine. Installation certificates supported the dates of installation, and the adjudicating authority had wrongly preferred the 3CD report and even relied on another statute to deny the credit.

Conclusion: The Modvat credit was admissible and the denial of credit and corresponding penalty were unsustainable.

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