Modvat credit on capital goods may be allowed without lease or hire-purchase papers where the goods are otherwise eligible under the scheme.

Rule 57R(3) was treated as an exclusionary provision confined to the financing transactions it expressly covers, so lease, hire-purchase or loan documentation was not a universal precondition for Modvat credit on otherwise eligible capital goods received in the factory under invoices. The credit claim was therefore admissible. On limitation, filing the invoices with departmental returns and the absence of any shown duty to disclose ownership in the manner alleged meant suppression was not established, so the extended period could not be invoked; the demand was time-barred and the penalty and interest could not survive. The issue concerning parts and components of air-conditioning plant and equipment was remitted for fresh decision.

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Issues: (i) whether Modvat credit on capital goods received from the customer was admissible notwithstanding that the goods were not acquired by lease, hire-purchase or loan agreement within the meaning of Rule 57R(3); (ii) whether the demand was barred by limitation and the penalty and interest were sustainable.

Issue (i): whether Modvat credit on capital goods received from the customer was admissible notwithstanding that the goods were not acquired by lease, hire-purchase or loan agreement within the meaning of Rule 57R(3).

Analysis: Rule 57Q permitted credit on specified capital goods and Rule 57T regulated receipt of such goods under prescribed documents. Rule 57R was held to be an exclusionary provision applicable only in the situations expressly mentioned in it, including cases where capital goods are acquired on lease, hire-purchase or loan from a financing company. The substituted text of Rule 57R(3) was read as laying down additional conditions only for those transactions and not as making ownership or direct purchase a universal precondition for credit. Since the capital goods were received in the factory under invoices and were otherwise eligible capital goods, the absence of lease or hire-purchase documentation did not defeat the credit claim.

Conclusion: Modvat credit on the capital goods was admissible in favour of the assessee.

Issue (ii): whether the demand was barred by limitation and the penalty and interest were sustainable.

Analysis: The invoices were filed with the departmental returns and themselves showed that the goods were received on account of the customer. No separate statutory requirement was shown requiring disclosure of ownership in the manner alleged by the Revenue. On those facts, suppression of facts was not established, so the extended period could not be invoked. Once the demand failed on merits and limitation, the penalty and interest could not survive.

Conclusion: The demand was time-barred, and the penalty and interest were not sustainable.

Final Conclusion: The appeal succeeded on the principal dispute regarding credit and limitation, while the issue concerning parts and components of air-conditioning plant and equipment was remitted for fresh decision.

Ratio Decidendi: Rule 57R(3) applies only to the specific financing transactions it expressly covers and does not make lease, hire-purchase, loan, or transfer of ownership a universal condition precedent for Modvat credit on capital goods otherwise eligible under the scheme.

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