2014 (10) TMI 722 - HC - Central Excise

Court rules civil construction items not eligible for MODVAT credit as capital goods.

The High Court upheld the decision of the Customs Excise and Service Appellate Tribunal (CESTAT) that the appellant was not entitled to avail MODVAT ... MODVAT Credit - Capital goods - Wrongful availment of credit - Goods used by the appellant was for manufacture of a platform - Held that:- The invoices reveal that the appellant had purchased checkered plates, packing plates, sheets, sections, staging materials, which were classified by the supplier as items falling under Chapter 84 as sugar mill machinery parts - These items are appropriately classifiable either under Chapter 72 as checkered plates, sections, etc. or under Chapter 73 as stagging material, if subjected to various processes, which go to the erection of shed and erected structures. The appellant admits that these plates, sheets, sections, etc. were used in the factory for the purpose of constructing platform for use of the running of machinery. By no stretch of imagination these items could be considered as sugar mill machinery or its components, spares or accessories classifiable under Chapter Heading 84. These items are not capital goods given against Sl.Nos.1 to 4 nor are components, spares and accessories, which are used as capital goods of Sl. Nos.1 to 4 of the table annexed to Rule 57-Q of the Rules. It is quite evident that the goods received by the appellant was used for construction of a platform which are used by mechanics for checking the running of the machines or used for supporting the equipments. Goods used by the appellant was for manufacture of a platform, which was used for raising a civil structure and by no stretch of imagination, could it be considered as a sugar mill machinery or a plant or component, spares or accessories classifiable under Chapter Heading 84. We are of the opinion, that these items cannot be specified as capital goods under Rule 57-Q of the Rules and, consequently, we hold that the appellant had wrongly availed the credit - Decided against assessee. Issues Involved:1. Eligibility of MODVAT credit on capital goods.2. Classification of goods under Chapter 84.3. Interpretation of Rule 57-Q of the Central Excise Rules, 1944.Issue-wise Detailed Analysis:1. Eligibility of MODVAT Credit on Capital Goods:The appellant, engaged in the manufacture of sugar and molasses, availed MODVAT credit on various capital goods under Rule 57-Q of the Central Excise Rules, 1944. During scrutiny, it was observed that the appellant had wrongly taken a credit of Rs. 9,63,016/- on items such as plates, sections, and staging material, which were not used in the manufacture of specified goods. The Deputy Commissioner initially accepted the appellant's contention and allowed the MODVAT credit. However, upon appeal, the Customs Excise and Service Appellate Tribunal (CESTAT) reversed this decision, holding that the appellant was not entitled to avail of the MODVAT credit. The High Court upheld the Tribunal's decision, stating that the items in question were used for constructing platforms and not directly in the manufacturing process, thus not qualifying as capital goods under Rule 57-Q.2. Classification of Goods under Chapter 84:The appellant argued that the goods received, such as plates, sections, and staging materials, were classified under Chapter 84 as parts of sugar mill machinery, thus qualifying for MODVAT credit. The appellant relied on the classification provided by the supplier. However, the Department contended that these items should be classified under Chapters 72 or 73, as they were used for constructing platforms and not as machinery parts. The High Court agreed with the Department, stating that the goods were used for civil construction and not as components or accessories of machinery, thus not falling under Chapter 84.3. Interpretation of Rule 57-Q of the Central Excise Rules, 1944:Rule 57-Q provides for taking credit of Central Excise Duty paid on capital goods used in the manufacture of specified goods. The rule includes a table specifying the eligible capital goods. The High Court examined the table and concluded that the items in question, used for constructing platforms, did not qualify as capital goods under Rule 57-Q. The court distinguished the present case from previous Supreme Court decisions, noting that the goods were not used as an integral part of machinery or for manufacturing processes but for civil construction purposes.Conclusion:The High Court dismissed the appeal, holding that the appellant had wrongly availed of MODVAT credit on items used for constructing platforms, which did not qualify as capital goods under Rule 57-Q of the Central Excise Rules, 1944. The court emphasized that the classification of goods must align with their actual use in the manufacturing process, and items used for civil construction cannot be considered capital goods eligible for MODVAT credit.