2005 (3) TMI 554 - AT - Central Excise

Denial of Modvat credit for dismantled machine parts upheld; penalty reduced to Rs. 25,000.

The court upheld the denial of Modvat credit for dismantled machine parts as they were not used in manufacturing goods. The penalty on the appellants was ... Cenvat/Modvat - Capital goods Issues: Modvat credit eligibility for dismantled machine partsAnalysis:The issue in this case revolves around the eligibility of Modvat credit for a machine that was dismantled by the appellants to understand its parts and components, which were then used to manufacture new machines. The appellant's advocate argued that since the dismantling provided knowledge for manufacturing new machines, Modvat credit should be granted. The advocate cited precedents such as Maditron v. CCE, Calcutta and CCE, Chandigarh v. Steel Strips Ltd. to support the claim that understanding machine components qualifies for Modvat credit.The respondent's representative contended that the dismantled machine parts were not used for designing, developing, or manufacturing any goods, thus making them ineligible for Modvat credit. The respondent also argued that the precedents cited by the appellant were not applicable to the current case.Upon evaluating the arguments, the judge noted that Modvat credit is applicable to capital goods used in the manufacture of specified goods. Since the dismantled machine was not utilized for designing, developing, or manufacturing any goods, the lower authorities were correct in denying the credit. However, considering the circumstances, the judge reduced the penalty imposed on the appellants to Rs. 25,000. The order of the Commissioner (Appeals) was upheld, and the appeal was rejected, except for the penalty modification.