2013 (9) TMI 98 - SC - Central Excise

Court dismisses appeal on MODVAT credit eligibility for machinery not used in manufacturing process.

M/s. KCP Ltd. Versus Commissioner of Central Excise, Chennai

The Supreme Court dismissed the appellant's appeal regarding MODVAT credit under Rule 57Q of the Central Excise Rules, 1944. The appellant's claim that ... MODVAT / Cenvat Credit – Capital Goods - Manufacturer versus trader - Appeal against the decision of tribunal [2003 (5) TMI 166 - CEGAT, CHENNAI] - Revenue was of the view that the appellant had wrongly described such parts-equipments-cables etc. as ‘capital goods’ though the said goods were not covered under the definition of ‘capital goods’ under the provisions of Rule 57 Q of the Rules - It was also submitted that such goods were not used in the factory premises of the appellant in any manufacturing process and therefore, the said goods were not capital goods as claimed by the appellant. It was also the case of the department that the said goods had been exported by the appellant along with parts of machinery manufactured by the appellant in a container and the said parts i.e. the parts purchased by the appellant had been exported in the same condition i.e. even without opening the packages or testing them. Thus, the role of the appellant was merely like a trader who had purchased certain goods including parts of machinery, cables etc. from dealers in our country and thereafter exported the same in the exact condition in special containers along with the machinery manufactured by it. Held that:- The appellant had only acted as a trader or as an exporter in relation to the machinery purchased by it, which had been exported and used for setting up a sugar plant in a foreign country - In any case, it cannot be said to have manufactured that plant in its factory - the appellant-assessee did not pay any excise duty on the sugar plant set up by it in Vietnam and therefore there cannot be any question of availing any MODVAT credit – Relying upon Madras Cements Ltd. v. CCE [2010 (5) TMI 8 - SUPREME COURT ] - In order to avail of MODVAT/CENVAT credit, an assessee had to satisfy the assessing authorities that the capital goods in the form of components, spares and accessories had been utilized during the process of manufacture of the finished product. It was pertinent to note that the most important object concerning grant of the MODVAT credit was to see that cascading effect of the duty imposed on the final product cleared at the time of sale was removed - If some duty was levied on the inputs, raw materials etc. and if the final product was also dutiable, then the duty levied on inputs i.e. raw materials was to be reduced from the duty ascertained on the final product. No duty was paid by the appellant on the final product i.e. on the sugar plant which had been set up in Vietnam - there would not be any question with regard to getting credit on the duty paid on the inputs, especially when the appellant had not used the machinery manufactured by other manufacturers in its factory premises while manufacturing machinery which had been transported along with machinery manufactured by the appellant in a common container which had been sent to Vietnam by sea – Decided against Assessee. Issues involved:1. Interpretation of Rule 57Q of the Central Excise Rules, 1944 regarding MODVAT credit availed by the appellant.2. Determination of whether the goods purchased by the appellant qualified as 'capital goods' under Rule 57Q.3. Assessment of whether the appellant complied with the conditions for availing MODVAT credit.4. Examination of whether the appellant used the purchased machinery in the manufacturing process.5. Consideration of whether the appellant's actions constituted manufacturing or trading/exporting.6. Analysis of the duty payment on the final product and its impact on MODVAT credit eligibility.Detailed Analysis:1. The appellant, a manufacturer of machinery for sugar and cement plants, appealed against the Final Order passed by the CEGAT regarding MODVAT credit availed under Rule 57Q of the Central Excise Rules, 1944. The appeals were filed due to the dispute arising from setting up a sugar plant in Vietnam, involving a mix of machinery manufactured by the appellant and purchased goods.2. The core issue revolved around whether the goods purchased by the appellant qualified as 'capital goods' under Rule 57Q. The department contended that the goods were not used in the appellant's factory for manufacturing the final product, challenging the appellant's classification of the goods as 'capital goods' for MODVAT credit purposes.3. The department issued show cause notices to the appellant, alleging irregular MODVAT credit availed on goods not meeting the 'capital goods' criteria. The subsequent appeal by the Commissioner to the CEGAT led to a decision remanding the case for computing the irregular credit and imposing penalties, prompting the appellant's further appeals.4. The appellant argued that the purchased machinery formed part of the inputs for setting up the sugar plant in Vietnam and thus qualified for MODVAT credit. However, the Tribunal concluded that the appellant failed to meet the conditions for MODVAT credit eligibility, as the machinery purchased was not utilized in the manufacturing process on the appellant's premises.5. The Tribunal's decision was based on the appellant's role being akin to a trader or exporter in relation to the purchased machinery, rather than a manufacturer using the goods in the factory. Additionally, the absence of excise duty payment on the final product in Vietnam precluded MODVAT credit eligibility, as the duty on inputs must be offset against the duty on the final product.6. The judgment emphasized the legal requirement for utilizing duty-paid inputs in the manufacturing process to claim MODVAT credit, highlighting the failure of the appellant to demonstrate such utilization. The decision upheld the Tribunal's findings, dismissing the appeals and emphasizing the lack of interference needed in the correct conclusion reached.This detailed analysis provides a comprehensive overview of the legal judgment, addressing each issue involved and the reasoning behind the decision delivered by the Supreme Court judges.