2010 (7) TMI 12 - SC - Central Excise

Assessee allowed CENVAT credit for steel plates and MS channels as capital goods under Rule 57Q for DG set chimney

SC held the assessee entitled to avail MODVAT/Cenvat credit for steel plates and M.S. channels used in fabricating a chimney for a diesel generating set, ... Capital goods under Rule 57Q - user test for capital goods - components, spares and accessories of specified goods - entitlement to MODVAT creditCapital goods under Rule 57Q - components, spares and accessories of specified goods - user test for capital goods - entitlement to MODVAT credit - Whether steel plates and M.S. channels used in fabrication of a chimney for the diesel generating set qualify as 'capital goods' under Rule 57Q and whether MODVAT credit in respect thereof was admissible. - HELD THAT: - The Court applied the 'user test'-whether items are used as part of machinery, plant or as accessories required for the functioning of the specified final product-to determine if the subject items fall within serial No.5 (components, spares and accessories) of the Table under Rule 57Q. Noting that the diesel generating set is covered by serial No.3 and that the chimney is an integral accessory to the generating set (required for discharge of exhaust gases and mandated by pollution control requirements), the Court held that steel plates and M.S. channels, used in fabrication of that chimney, are employed as accessories to the specified capital good. The Court relied on the user-oriented approach affirmed in Jawahar Mills Ltd. to conclude that goods which are used in the factory as components or accessories of the specified capital goods qualify as 'capital goods' for MODVAT credit purposes. The Tribunal's conclusion that the assessee was entitled to MODVAT credit on these items was therefore legally correct. [Paras 7, 10, 13, 14, 15]Steel plates and M.S. channels used in fabrication of the chimney for the diesel generating set are 'capital goods' within Rule 57Q and the assessee was entitled to avail MODVAT credit; appeal dismissed.Final Conclusion: The appeal by the Revenue is dismissed; the Tribunal correctly held that the steel plates and M.S. channels used in the fabrication of the chimney for the diesel generating set are capital goods under Rule 57Q and the assessee was entitled to MODVAT credit. Issues:Challenge to order allowing MODVAT credit for steel plates and M.S. channels used in chimney fabrication as capital goods under Rule 57Q.Analysis:1. The Tribunal allowed MODVAT credit for steel plates and M.S. channels used in chimney fabrication as capital goods under Rule 57Q. The assessee contended that these items qualified as capital goods under the table of Rule 57Q. The Revenue argued that these items were independently classifiable and not used as inputs for the final product, hence not eligible for MODVAT credit under serial No.5 of the table.2. The Rule 57Q allows manufacturers to claim MODVAT credit on capital goods used in the factory for final product manufacture. The dispute centered around whether steel plates and M.S. channels used in chimney fabrication fell under serial No.5 of the table. The Court examined the definition of capital goods in a previous case and applied the 'user test' to determine if these items could be considered capital goods.3. Applying the 'user test,' the Court found that steel plates and M.S. channels used in chimney fabrication qualified as capital goods under Rule 57Q. These items were integral for the chimney, a necessary component of the diesel generating set, especially for compliance with Pollution Control laws. Therefore, the Tribunal's decision allowing MODVAT credit for these items was upheld.4. The Court dismissed the Revenue's appeal, affirming the Tribunal's decision that the assessee was entitled to MODVAT credit for steel plates and M.S. channels used in chimney fabrication as capital goods under Rule 57Q. The judgment emphasized the importance of these items in the manufacturing process and their compliance with relevant laws.5. In conclusion, the Court found no merit in the Revenue's appeal and upheld the decision in favor of the assessee. Each party was directed to bear their own costs. The judgment was delivered by D.K. Jain and C.K. Prasad on July 9, 2010, in New Delhi.