Modvat credit on capital goods for captive power plant upheld; extended limitation and contractor penalty also rejected.

Modvat credit on duty-paid capital goods used for initial setting up of a captive power plant and DG set in the manufacturer's factory was held admissible because the statutory declaration was filed, the work formed part of turnkey installation, and non-dutiability of the electricity generated did not defeat credit. The demand was also held time-barred as there was no suppression with intent to evade duty, so the extended period could not be invoked. Penalty on the contractor for alleged abetment failed because the underlying credit was allowable and no independent culpable contravention was shown.

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Issues: (i) Whether Modvat credit on capital goods used for setting up the captive power plant and DG set was admissible to the manufacturer and whether the demand was hit by limitation. (ii) Whether penalty on the contractor was sustainable for alleged abetment.

Issue (i): Whether Modvat credit on capital goods used for setting up the captive power plant and DG set was admissible to the manufacturer and whether the demand was hit by limitation.

Analysis: The capital goods were used in the factory of the manufacturer for setting up the power plant on a turnkey basis. The contract and evidence showed that the work was undertaken by the contractor as part of initial setting up, and the manufacturer had filed the relevant Modvat declaration. The fact that electricity generated from the captive power plant was non-dutiable did not by itself defeat credit on the duty-paid capital goods. The Tribunal also held that the cited co-ordinate bench decisions allowed credit in identical circumstances and that mere filing of a reference application did not suspend the operation of those rulings. As declarations had been filed and the material particulars were disclosed, suppression with intent to evade duty was not established and the extended period could not be invoked.

Conclusion: Modvat credit was admissible and the demand was time-barred. The finding was in favour of the assessee.

Issue (ii): Whether penalty on the contractor was sustainable for alleged abetment.

Analysis: The penalty was founded on the premise that the contractor had abetted the alleged irregular availment of credit. Once the credit itself was held to be available in law, and there was no material showing any separate contravention or culpable abetment by the contractor, the basis for penalty failed.

Conclusion: The penalty on the contractor was not sustainable and was set aside.

Final Conclusion: The impugned orders were set aside and both sets of appeals were allowed with consequential relief.

Ratio Decidendi: Modvat credit on duty-paid capital goods used for initial setting up of a plant by a contractor in the manufacturer's factory is admissible where the statutory declaration is filed and no suppression is proved; penalty cannot survive when the underlying credit demand fails and no independent contravention is established.

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