Appellate Tribunal allows Modvat credit for essential parts of DG set

The Appellate Tribunal ruled in favor of the applicant, a cement manufacturer, allowing Modvat credit for essential parts and spares of a DG set purchased for their factory premises. The Tribunal emphasized the eligibility for Modvat credit on such items, citing relevant provisions and precedents. It found that the order was not for a fully assembled DG set but included necessary auxiliaries for installation, distinguishing it from cases where credit was disallowed. Consequently, the Tribunal waived the pre-deposit of duty and penalty, scheduling the matter for further hearing.

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Issues:
Appeal against disallowance of Modvat credit, imposition of penalty, and demand of interest. Stay petition for waiver of pre-deposit of duty and penalty.

Analysis:
The appeal before the Appellate Tribunal CEGAT, New Delhi involved the disallowance of Modvat credit, imposition of penalty, and demand of interest. The applicant, engaged in cement manufacturing, had placed a purchase order for a DG Set from Wartsila India Ltd. The Department contended that the Modvat credit could not be claimed as the DG set was to be supplied and installed by Wartsila. However, the applicant argued that as per the contract, the engine, alternator, and other parts of the DG set were to be delivered to their factory premises, entitling them to take Modvat credit. The applicant relied on relevant provisions of the Central Excise Rules, emphasizing the eligibility for Modvat credit on essential parts and spares for DG set installation. The Counsel cited precedents like the case of Gujarat Ambuja Cement Ltd. where Modvat credit was allowed on similar grounds. The Tribunal had previously ruled in favor of manufacturers taking Modvat credit on capital goods for setting up power plants, setting aside the impugned orders.

The Department opposed the applicant's request, highlighting the contractual terms and arguing that the applicant could not claim credit on parts and components of the DG set as the title vested in the contractor. They distinguished the present case from the Gujarat Ambuja Cement Ltd. case, emphasizing the distinction between parts and components purchased directly by the applicant and a fully assembled DG set. The Department urged for the deposit of the entire duty, penalty, and interest amount.

Upon hearing the submissions, the Tribunal noted that the contract specified the supply of a DG set with common auxiliaries for the cement plant, indicating the requirement for various auxiliaries along with the engine and alternator. The Tribunal found that the order was not for a fully assembled DG set but included auxiliaries necessary for installation. Considering the precedents of Gujarat Ambuja Cement Ltd. and NRC Ltd., the Tribunal concluded that the applicant was entitled to Modvat credit, waiving the pre-deposit of duty and penalty. The matter was scheduled for regular hearing on a specified date.

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