Modvat credit for capital goods in registered units cannot be denied on a narrow premises-based objection; time-bar also applied.

Modvat credit on capital goods was treated as admissible where the same assessee's registration covered two manufacturing units and the goods were installed in one registered unit. After the amendment to Rule 57Q, eligibility was read broadly, so credit could not be denied merely because the capital goods were used at a separate premises of the same assessee; the job-worker line of cases was distinguished. The demand was also treated as time-barred because the gap between inspection and issuance of the show cause notice supported the limitation defence. The Revenue appeal therefore failed, and credit was upheld with the demand found barred by limitation.

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Issues: (i) Whether Modvat credit on capital goods was admissible when the same assessee held registration for two units and the capital goods were installed in one of the units; (ii) Whether the demand was barred by limitation.

Issue (i): Whether Modvat credit on capital goods was admissible when the same assessee held registration for two units and the capital goods were installed in one of the units.

Analysis: The Registration Certificate covered both units of the assessee, and the units were engaged in manufacture and clearance of final products. In view of the amendment to Rule 57Q by Notification No. 6/97-C.E. (N.T.), the expression governing eligibility stood broadened, and the capital goods installed in one of the registered manufacturing units could not be denied credit merely on the premise that they were used in a separate premises of the same assessee. The contrary reliance on the job-worker line of cases was held distinguishable.

Conclusion: Modvat credit on the capital goods was held admissible, and the objection to eligibility failed.

Issue (ii): Whether the demand was barred by limitation.

Analysis: The delay between the inspection and the issuance of the show cause notice was accepted as bringing the matter within the principle of time-bar, and the cited Supreme Court precedent on delayed issuance of notice was treated as applicable.

Conclusion: The plea of time-bar was held to be justified.

Final Conclusion: The Revenue appeal was found to be without merit and the assessee's entitlement to Modvat credit was upheld, with the additional finding that the demand was hit by limitation.

Ratio Decidendi: Where the same assessee's registered manufacturing units are covered by the certificate and the capital goods are used in the manufacturing set-up after the amendment to Rule 57Q, Modvat credit cannot be denied on a narrow premises-based objection; a delayed demand may also fail on limitation where the facts justify a time-bar defence.

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