Modvat credit and excisability of erected plant turn on factory use and whether permanently fixed components remain goods.

Modvat credit under Rules 57A and 57Q was available only where inputs or capital goods had the required nexus with manufacture or use in the factory. Bought out items exported in the same condition, without being used in the factory, did not satisfy that statutory condition and were not eligible for credit. A sugar plant assembled and permanently fixed at the customer's site was treated as immovable property rather than excisable goods, because once erected it ceased to answer the description of goods for excise purposes. The Tribunal therefore treated the credit as wrongly allowed and directed recomputation of the irregular credit and penalty.

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Issues: (i) Whether bought out items exported as such without being used in the factory qualified as inputs or capital goods for Modvat credit under the Central Excise Rules, 1944; (ii) Whether the sugar plant assembled at the site could be treated as excisable goods or was an immovable property on erection.

Issue (i): Whether bought out items exported as such without being used in the factory qualified as inputs or capital goods for Modvat credit under the Central Excise Rules, 1944.

Analysis: The credit scheme under Rule 57A and Rule 57Q contemplated inputs or capital goods used in or in relation to manufacture, or used in the manufacturer's factory, as the basis for availment of credit. The items in question were received only for onward export, were exported in the same condition, and were neither intended to be used nor actually used in the factory. The provisions allowing removal of inputs or capital goods as such under bond governed the manner of export and did not enlarge eligibility to take credit where the statutory condition of factory use was absent.

Conclusion: The bought out items were not eligible inputs or capital goods for Modvat credit; the finding was against the assessee.

Issue (ii): Whether the sugar plant assembled at the site could be treated as excisable goods or was it an immovable property on erection.

Analysis: The plant was not assembled and disassembled in the factory for export as CKD goods. On the admitted facts, the export was of separate bought out components for erection at the customer's site, and once erected the plant became fixed to the ground. A plant so attached ceases to answer the description of goods for excise purposes and falls within the category of immovable property.

Conclusion: The erected sugar plant was immovable property and not goods; the finding was against the assessee.

Final Conclusion: The Tribunal held that the credit had been wrongly allowed, set aside the Commissioner's order, and sent the matter back for recomputation of irregular credit and appropriate penalty.

Ratio Decidendi: Modvat credit under Rules 57A and 57Q is available only where the inputs or capital goods satisfy the statutory nexus with manufacture or factory use, and goods erected into a permanently fixed plant are not excisable goods.

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