2002 (4) TMI 140 - AT - Central Excise

Modvat credit for capital goods supplied by another maker u/r 57Q upheld; extended limitation rejected, penalty set aside.

Modvat credit under Rule 57Q was denied on the ground that capital goods were supplied by another manufacturer. The Tribunal held that credit is ... Modvat credit on the capital goods - Demand - Limitation - ratio decidendi - Whether the capital goods credit under Rule 57Q of the Central Excise Rules, 1944, is available to them in respect of the capital goods supplied to them by M/s. Madaus Pharmaceuticals (I) Pvt. Ltd. (Madaus). - HELD THAT:- Modvat credit of the duty paid on capital goods was allowed to take away the cascading effect of the central excise duty. The procedure to be followed by a manufacturer for availing of the credit is given in Rule 57T according to which the manufacturer shall be allowed to take credit of the specified duty only if the capital goods are received in the factory premises of manufacturer under the cover of document specified under Rule 57G evidencing payment of duty on such capital goods. It has not been disputed before us that capital goods (except on parts and components of air- conditioning machinery) are covered by the definition of capital goods as given in Rule 57Q(1) nor is there any dispute that credit has been taken only of the duty specified in Rule 57Q(2). It has also not been disputed that capital goods were received in the factory premise of the appellant under the invoices issued under Rule 52A which is one of the specified documents under Rule 57G. Once these conditions are complied with appellants become eligible to avail of the Modvat credit of the duty paid on capital goods. In our view Rule 57R is invocable only in such circumstances mentioned therein such as use of capital goods for manufacture of exempted goods, supplier becoming eligible for refund of duty or liable to payment of additional duty, or the capital goods are acquired by the manufacturer on lease, hire-purchase or loan agreement from financing company. As per Rule 57T, the manufacturer is required to file a declaration indicating the particular of the capital goods and description of the final products. The manufacturer has also to file a declaration to the effect that the capital goods shall not be used exclusively for exempted final products and that he would not claim depreciation under the Income-tax Act in respect of duty portion. In view of these facts we hold that there was no suppression of the fact warranting invocation of extended period of limitation. As the appeal is being allowed both on merit as well as limitation, penalty imposed on the appellants and interest demanded from them are set aside. We also observe from the impugned order that the Adjudicating Authority had not considered the change of non-availability of Modvat credit in respect of parts and components of the air-conditioning plant and equipment mentioned in show cause notice dated 6-10-1998 separately since the amount involved was included in the show cause notice dated 4-12-1998. In the interest of justice we remand the said aspect only to be decided a fresh by the competent Adjudicating Authority after affording a reasonable opportunity of personal hearing to the appellants. The appeal stands disposed of in these terms. Issues: (i) Whether Modvat (capital goods) credit under Rule 57Q of the Central Excise Rules, 1944 is available to the manufacturer in respect of capital goods supplied by its customer; (ii) Whether extended period of limitation and penalty/interest are invocable for disallowance of such credit.Issue (i): Whether the appellants are entitled to claim Modvat credit of duty paid on capital goods received from their customer.Analysis: Rule 57Q(1) defines capital goods and Rule 57Q(2) specifies duties eligible for credit. Rule 57T prescribes the procedural documents for availing credit including receipt of capital goods under specified documents (Rule 57G documents) and filing required declarations. Rule 57R(3) addresses cases where capital goods are acquired on lease, hire-purchase or loan from a financing company and prescribes additional procedure; its substituted form removed the earlier blanket requirement of ownership by the manufacturer. The substituted sub-rule applies when the capital goods are acquired in the manner specified therein but does not restrict credit exclusively to such acquisitions. Precedents and departmental clarifications indicate that conditions in a specific rule apply to claims made under that rule and do not preclude claims under other provisions where requirements are otherwise satisfied.Conclusion: The appellants are entitled to Modvat credit of duty paid on the capital goods received from their customer.Issue (ii): Whether the extended period of limitation and penalty/interest can be invoked for the demand made in respect of the Modvat credit.Analysis: The appellants had produced invoices and filed returns indicating receipt of capital goods; the revenue did not demonstrate suppression of material facts or any rule requiring disclosure of ownership beyond the procedural declarations under Rule 57T. Absence of suppression and compliance with prescribed documentary procedure preclude invocation of extended limitation and penalty under the facts.Conclusion: Extended period of limitation is not invocable and the penalty and interest imposed are not maintainable.Final Conclusion: The appeal is allowed on merits and on limitation; Modvat credit is permitted, penalty and interest are set aside, and the matter relating to parts and components of air-conditioning plant is remanded for fresh adjudication with opportunity of personal hearing.Ratio Decidendi: Where a manufacturer satisfies the conditions and procedural requirements for claiming credit under the Modvat rules (including receipt of capital goods under specified documents and required declarations), Rule 57R(3) (which prescribes additional conditions for lease/hire-purchase/loan arrangements) is not to be read as an exclusive prerequisite for all claims to capital goods credit; compliance with Rule 57T and related provisions suffices to avail the credit, and absence of suppression precludes extended limitation and penalty.