2000 (8) TMI 178 - AT - Central Excise

Tribunal allows appeal on Modvat credit for engine parts, rejects penalty, sets aside disallowance

The Tribunal allowed the appeal challenging the disallowance of Modvat credit on Engine, Alternators, and parts of Diesel Generating sets under Rule 57-Q, ... Modvat on capital goods Issues involved: Admissibility of Modvat credit under Rule 57-Q, applicability of Rule 57-R(2) and Rule 57-T(7), imposition of penalty.Summary:1. The appeal challenged the order disallowing Modvat credit on Engine, Alternators, and parts of Diesel Generating sets under Rule 57-Q, and imposing a penalty of Rs. 10 lakhs.2. The appellants, engaged in cement manufacturing, availed Modvat credit on inputs and capital goods. They contracted with WDIL for two diesel generating sets, assembled in their factory with parts supplied by various vendors.3. A show cause notice proposed disallowing credit of Rs. 2,04,81,197/- under Rule 57U, confirmed by the Adjudicating Authority with a penalty.4. The appellants argued that the parts of DG sets used in their factory are eligible for credit under Rule 57-Q, contrary to the Commissioner's finding that WDIL was the manufacturer.5. The appellants contended that the interpretation of Rule 57-Q by the Commissioner would render certain provisions redundant, citing a Larger Bench decision and ownership of parts by GACL.6. The opposing view highlighted that the parts were used in WDIL's factory, not GACL's, and argued against the applicability of Rule 57-T(7) and Rule 57-R(2) to the case.7. The Tribunal found merit in applying Rule 57-T(7) to allow credit on parts of DG sets used in the factory, rejecting the Commissioner's interpretation and upholding the appeal.8. Given the eligibility for Modvat credit under Rule 57-T(7), the Tribunal did not address other submissions by the appellants.9. Consequently, the impugned order disallowing Modvat credit was set aside, and the appeal was allowed.