2019 (3) TMI 1047 - HC - Central Excise

Court excludes certain conveyors from being classified as capital goods for Modvat Credit under Rule 57Q(1)

The Commissioner of CGST & Central Excise,) Mumbai East Commissionerate Versus CNH Industrial (India) Pvt. Ltd. (Erstwhile M/s. New Holland Fiat (India) Ltd.

The Commissioner of CGST & Central Excise,) Mumbai East Commissionerate Versus CNH Industrial (India) Pvt. Ltd. (Erstwhile M/s. New Holland Fiat (India) ... Issues Involved:1. Whether the CESTAT was justified in holding that parts of a conveyor are covered under Sr.No.5 of the Table to Rule 57Q(1) of the Central Excise Rules, 1944, despite Chapter Heading 8431 being excluded in Sr.No.2 of the Table.2. Whether the CESTAT was justified in relying upon Circular No.276/110/96-TRU dated 02.12.1996 to hold that for the purpose of parts, Chapter Heading is immaterial.Issue-wise Detailed Analysis:1. Justification of CESTAT's Decision on Parts of Conveyor:The Revenue's appeal challenged the CESTAT's decision, which allowed Modvat Credit on parts of conveyors under Chapter Heading 8431, despite its exclusion in Sr.No.2 of the Table to Rule 57Q(1) of the Central Excise Rules, 1944. The Revenue argued that the Tribunal misinterpreted the legal provisions and ignored the plain language of the rule, which explicitly excluded certain goods from being classified as capital goods eligible for credit.The Tribunal had to consider whether the exclusion applied to all goods under Chapter Heading 8431 or only specific items. The Tribunal concluded that parts of conveyors, though falling under Chapter Heading 8431, were covered under Sr.No.5 of the Table, which includes components, spares, and accessories of goods specified against Sr.Nos.1 to 4, irrespective of their classification.The High Court analyzed the language of Rule 57Q and the Table, noting that Sr.No.2 excludes certain goods from Chapter 84, including those under Heading 8431. However, Sr.No.5 covers components, spares, and accessories of goods specified in Sr.Nos.1 to 4. The Court found that the Tribunal's interpretation was incorrect because it failed to consider the entire excluded category. Goods under Heading 8431 should not qualify for credit if they are excluded under Sr.No.2, even if they are parts of conveyors.2. Reliance on Circular No.276/110/96-TRU:The Tribunal relied on Circular No.276/110/96-TRU, which clarified that components, spares, and accessories of specified capital goods are eligible for credit, irrespective of their classification. The Circular aimed to ensure that the scope of eligible components was not restricted to specific chapters.The High Court reviewed the Circular and its implications. The Circular stated that capital goods eligible for credit could be specified by classification or description and emphasized that components, spares, and accessories should be considered irrespective of their classification. However, the Court noted that the Circular's guidance should not override the explicit exclusions in the Table to Rule 57Q.The Court concluded that the Tribunal erred in allowing Modvat Credit based solely on the Circular without adequately considering the specific exclusions in the Table. The Tribunal's decision to permit credit for parts of conveyors under Chapter Heading 8431 was not consistent with the rule's language and exclusions.Conclusion:The High Court partially set aside the Tribunal's decision, holding that parts of conveyors under Chapter Heading 8431 are excluded from being classified as capital goods eligible for Modvat Credit under Sr.No.2 of the Table to Rule 57Q(1). The Tribunal's reliance on Circular No.276/110/96-TRU was deemed inappropriate without considering the explicit exclusions in the rule. The appeal was allowed to the extent indicated, and the rest of the Tribunal's order was upheld.