2003 (5) TMI 166 - AT - Central Excise

Tribunal rules on Modvat credit eligibility for exported items & immovable property

COMMISSIONER OF CENTRAL EXCISE, CHENNAI-I Versus KCP. LTD.

The Tribunal held that bought out items not used in the factory premises do not qualify for Modvat credit as they were exported without being incorporated ... Modvat/Cenvat - Inputs - Capital goods - Excisability Issues Involved:1. Eligibility of Modvat credit on bought out items declared as inputs/capital goods.2. Classification of sugar plant as a commodity and its implications.3. Legality and correctness of the Commissioner's order.Summary:1. Eligibility of Modvat Credit on Bought Out Items Declared as Inputs/Capital Goods:The respondents, engaged in manufacturing machinery for sugar and cement plants, availed Modvat credit on inputs and capital goods, including bought out items, which were merely brought into the factory's despatch section for export. The department argued that these items did not fit the definition of 'capital goods' u/r 57Q of the CER as they were not used in the factory premises. The Tribunal observed that Modvat credit is admissible only for inputs used in the manufacture of final products within the factory. Since the bought out items were exported as such without being used in the factory, they do not qualify for Modvat credit.2. Classification of Sugar Plant as a Commodity and Its Implications:The Commissioner had treated the entire sugar plant as a commodity, thereby qualifying all bought out items used in its erection as inputs or capital goods. The Tribunal disagreed, noting that the sugar plant was never assembled and disassembled in the factory for export. The Tribunal referenced the Supreme Court's rulings in Quality Steel Tubes v. CCE and M/s. Mittal Engineer Works Pvt. Ltd., which held that immovable property is not dutiable. Therefore, the sugar plant on erection is considered immovable property and not goods.3. Legality and Correctness of the Commissioner's Order:The Tribunal found the Commissioner's order dropping the proceedings against the respondents to be incorrect. The Tribunal held that the bought out items, both inputs and capital goods, cannot be considered eligible for Modvat credit. The Tribunal set aside the Commissioner's order and remanded the matter to the original authority for computing and confirming the amount of irregularly availed Modvat credit, including the imposition of appropriate penalty, after giving an effective opportunity of hearing to the appellants.Conclusion:The appeals were allowed by remand, and the cross-objections were disposed of accordingly.