1991 (10) TMI 152 - AT - Central Excise

Tribunal upholds MODVAT benefit for specific inputs under Chapter 59, rules in favor of respondents

The Tribunal dismissed the department's appeal, affirming the respondents' eligibility for MODVAT benefit for specific inputs like synthetic cloth, metal ... MODVAT Credit Issues Involved:1. Eligibility for MODVAT benefit for specific inputs.2. Classification of the inputs under the Central Excise Tariff.3. Interpretation of the terms 'machine,' 'machinery,' 'equipment,' and 'appliances' under Rule 57A.4. Time bar on demand for disallowing MODVAT credit.Issue-wise Detailed Analysis:1. Eligibility for MODVAT benefit for specific inputs:The Collector of Central Excise, Bhubaneswar, challenged the Order-in-Appeal which allowed MODVAT benefit for inputs like synthetic cloth, metal cloth, dryer fabrics, and machine cloth. The Assistant Collector had originally denied this benefit, considering these items as tools, equipment, and appliances. The Collector (Appeals) overturned this decision, stating that these items do not fall under the excluded category of machinery, plant, etc., as per the Explanation under Rule 57A.2. Classification of the inputs under the Central Excise Tariff:The respondents argued that the inputs in question were classified under Tariff Heading 5909, which covers textile fabrics and articles suitable for industrial use. These items are not included in the definition of inputs excluded under Rule 57A. The respondents emphasized that the excluded items fall under Chapters 82, 84, 85, and 90, and that the goods in question do not perform any mechanical function. The department's classification of these goods under Chapter 59 further supports their eligibility for MODVAT benefit.3. Interpretation of the terms 'machine,' 'machinery,' 'equipment,' and 'appliances' under Rule 57A:The Tribunal noted that the correct interpretation of these terms is crucial. The MODVAT provisions do not require goods to be used as raw materials but as inputs in or in relation to the manufacture of final products. The exclusion of machines, machinery, plant, equipment, apparatus, tools, or appliances from the definition of inputs under Rule 57A indicates that these items are used in the manufacturing process but are specifically excluded from MODVAT credit. The Tribunal agreed with the respondents that the Tariff definitions are relevant in the absence of specific definitions in Rule 57A. The goods in question, classified under Chapter 59, are not considered machines, machinery, or appliances and therefore are eligible for MODVAT benefit.4. Time bar on demand for disallowing MODVAT credit:The respondents argued that the notice for the alleged wrong availment of credit, issued on 16-2-1988 for credits utilized in March, May, and July 1987, was time-barred as there was no allegation of suppression, fraud, etc. The Tribunal agreed, citing the decision in Collector of Central Excise, Patna v. TELCO and the Karnataka High Court's ruling in Tungbhadra Industries v. Collector of Central Excise, Bangalore. The demand was found to be time-barred, further supporting the dismissal of the department's appeal.Conclusion:The Tribunal dismissed the department's appeal on both merits and time bar, upholding the respondents' eligibility for MODVAT benefit for the inputs in question. The classification under Chapter 59 and the interpretation of the terms under Rule 57A were key factors in this decision, along with the time bar on the demand for disallowing MODVAT credit.