2015 (6) TMI 154 - HC - Central Excise

High Court affirms Assessee's entitlement to Modvat/CENVAT credit on capital goods. Tribunal decision upheld.

The High Court held that the Assessee was entitled to claim Modvat/CENVAT credit on capital goods supplied by OEMs, as the requirement of ownership or ... Denial of CENVAT Credit - Capital goods - Whether the Respondent/Assessee is entitled to claim Modvat/CENVAT when Capital goods is not owned/purchased nor taken on lease or hire purchase agreement - Held that:- Respondent assessee is engaged in manufacturer of plastic articles /components and parts by using injection moulding machines and manufactures finished goods as per the requirement of the original equipment manufacturers. It is not in dispute that the moulds supplied by the supplier are capital goods. The moulds used for injection moulding machine to manufacture the goods/finished products were supplied to the respondent assessee by original equipment manufacturer. These were duty paid moulds by the original manufacturer. Credit of the duties on moulds was being taken by the assessee. It is also not in dispute that the moulds supplied by the supplier are capital goods. - duty paid on capital goods moulds, were supplied by the original manufacturer to the assessee. Perusal of rules before and after amendment the requirement of ownership was in the erst while regime upto 1994 as governed by then subsisting rules. After 1994, sub rule 3 of Rule 57R having under gone amendment to it, removed such requirement of ownership/acquisition from financing agency. For taking credit of duty paid on said goods, it would not be necessary that capital goods shall either be owned by the assessee or those shall be acquired by finance from financing agency. Denial of credit based on such ground is unsustainable. - Decided against Revenue. Issues Involved:1. Entitlement of Modvat/CENVAT credit when capital goods are not owned, purchased, or taken on lease or hire purchase agreement.2. Correctness of the Tribunal's view in light of the decision reported in 2001 (138) ELT 889 Trb. Mumbai.Detailed Analysis:Issue 1: Entitlement to Modvat/CENVAT CreditThe primary issue was whether the Respondent/Assessee could claim Modvat/CENVAT credit on capital goods (moulds) that were not owned, purchased, or taken on lease or hire purchase agreement. The Assessee used these moulds, supplied by Original Equipment Manufacturers (OEMs), to manufacture plastic articles/components and parts. The dispute pertained to the years 1997-98 and 1998-99.A show cause notice was issued on 27th October 1999, alleging inadmissible Modvat Credit utilization on the moulds as capital goods, amounting to Rs. 35,49,659, in contravention of Rules 57Q, 57R(3), and 57(T) of the Central Excise Rules, 1944. The notice contended that the Assessee neither owned the capital goods nor had hired them on lease, hire-purchase, or loan agreement.The Assessee responded, highlighting amendments to Rules 57Q and 57R post-1994, which removed the necessity for ownership of the moulds. The rules before and after the amendment were scrutinized. Initially, Rule 57R(3) disallowed credit if capital goods were acquired by any means other than direct purchase. However, after the 1994 amendment, Rule 57R(3) allowed credit if capital goods were acquired on lease, hire-purchase, or loan agreement from a financing company, subject to specific conditions.The Tribunal's decision in favor of the Assessee was based on various Supreme Court rulings and the case of German Remedies Ltd. v. Commissioner of Central Excise, Goa, which clarified that the requirement of ownership was removed post-1994 amendments. Thus, the Assessee was entitled to claim Modvat/CENVAT credit even if the capital goods were not owned or acquired through financing.Issue 2: Correctness of the Tribunal's ViewThe Tribunal's view was challenged by the Appellant, citing the case of Terene Fibres India Pvt. Ltd. v. Commissioner of Central Excise, Mumbai-VI, which purportedly required capital goods to be owned by the Assessee or acquired through financing. However, the Tribunal's ultimate decision in Terene Fibres favored the Assessee, holding that the demand was unsustainable.The Respondent's counsel argued that Rule 57R(3) did not imply that credit could only be availed if the capital goods were acquired on lease or hire-purchase from a financing agency. The credit could not be disallowed if other provisions permitted it. The case of Union of India v. Marmagoa Steel Ltd. was cited, where credit was allowed even if the goods were directly transferred by the importer to the Assessee's unit, provided the duty-paid documents were in order.The Tribunal's decision was supported by various judgments, including those of the Gujarat and Punjab & Haryana High Courts, which reinforced that ownership or acquisition through financing was not a prerequisite for claiming Modvat/CENVAT credit post-1994 amendments.Conclusion:The High Court concluded that the Assessee was entitled to Modvat/CENVAT credit on the capital goods supplied by the OEMs, as the requirement of ownership or acquisition through financing was removed by the 1994 amendments. The Tribunal's view was upheld, and the appeal was dismissed, confirming that Modvat/CENVAT credit could not be disallowed based on the grounds presented by the Appellant.Judgment:Both questions were answered in the affirmative, against the Appellant. The appeal was dismissed with no order as to costs.