Tribunal allows Modvat credit for duty on debonded capital goods, clarifies Central Excise Rules

KREBS BIOCHEMICALS LTD. Versus COMMISSIONER OF CUSTOMS & C. EX., GUNTUR

KREBS BIOCHEMICALS LTD. Versus COMMISSIONER OF CUSTOMS & C. EX., GUNTUR - 2001 (138) E.L.T. 353 (Tri. - Chennai) Issues:
- Denial of Modvat credit on capital goods debonded from a 100% Export Oriented Unit (EOU) to a domestic tariff area unit.
- Rejection of Modvat credit claim by lower authorities based on specific grounds.
- Interpretation of Central Excise Rules regarding Modvat credit eligibility.
- Validity of T.R.6 challan as a specified document for claiming Modvat credit.
- Applicability of Modvat credit on indigenously acquired capital goods debonded from EOU.

Analysis:

The appeal involved a dispute regarding the denial of Modvat credit on capital goods debonded from a 100% EOU to a domestic tariff area unit. The appellant, M/s. Krebs Biochemicals Ltd., sought Modvat credit for duty paid on indigenously acquired capital goods upon conversion into a domestic tariff area. The lower authorities rejected the claim citing various grounds, including the absence of provisions allowing credit for goods received before specific dates, the nature of goods exempted from duty due to EOU status, and the use of T.R.6 challan as an unspecified document for duty payment.

The Commissioner of Central Excise (Appeals) upheld the rejection, emphasizing that only Additional Customs Duty (CVD) on imported goods upon debonding was eligible for Modvat credit, not Excise duty on indigenous goods. The appellant argued that the denial based on the absence of provisions before 16-3-1995 was incorrect since duty had been paid post that date, aligning with the expanded Modvat credit scheme. They also highlighted the machinery transfer and reliance on Rule 57T(4) for credit eligibility.

The Tribunal considered the appellant's contentions, referencing precedents like Gabriel India Ltd. v. CCE, to support the correlation between duty payment under T.R.6 challan and credit eligibility. The Tribunal noted that Modvat credit could be allowed on capital goods procured domestically, contrary to the department's argument limited to CVD on imported goods. The validity of T.R.6 challan as a specified document for credit was upheld, overturning the lower authorities' decision.

Ultimately, the Tribunal ruled in favor of the appellant, allowing Modvat credit of Rs. 16,33,355 for duty paid on debonded capital goods. The decision emphasized the alignment of duty payment dates with the Modvat credit scheme's implementation, rejecting the department's arguments against credit eligibility on indigenously procured goods debonded from the EOU. The judgment clarified the interpretation of Central Excise Rules and upheld the appellant's right to claim Modvat credit on the disputed capital goods.