2010 (3) TMI 278 - HC - Central Excise

High Court: Felt Cloth & Wire Netting Qualify as Inputs for Modvat Credit under Rule 57-A

The High Court clarified the scope of modvat credit under Rule 57-A, ruling that felt cloth and wire netting used in manufacturing paper products qualify ... Modvat / Cenvat Credit - felt cloth and wire netting - part of machines – Held that: the assessee is entitled to avail the modvat credit on the inputs/material used in or in relation to the manufacture of the final products whether directly or indirectly and whether contained in the final product or not. - that use of felt cloth and wire netting would be entitled to modvat credit when used in manufacture of final products 'The Tribunal is correct in allowing the availability of credit of duty paid on felt cloth and wire netting which form the part of machines, used in the manufacture of paper and paper boards, including paper products, under Rule 57-A when the CEGAT's Larger Bench's decision already stands referred to the High Court...' The Court held that Rule 57-A and section 57B grant modvat credit on 'inputs used in or in relation to the manufacture of final products, whether directly or indirectly and whether contained in the final products or not.' Section 57B(2) bars credit on 'machines, machinery, equipment, apparatus, tools, appliances or capital goods,' but does not exclude materials incorporated in or used for manufacture. Reliance on Collector of Central Excise v. Escorts Mahle Ltd. establishes that material used in manufacture qualifies as input for modvat. Prior Division Bench decisions treating felt cloth and wire netting as inputs in paper manufacture were followed. Accordingly, the use of felt cloth and wire netting in manufacture of paper and paperboard is entitled to modvat credit; the substantial question was answered in favor of the assessee and against the revenue.