1998 (6) TMI 247 - AT - Central Excise

Court upholds Modvat credit for air conditioning parts in gelatine capsule manufacturing.

The Court upheld the Commissioner (Appeals) order, ruling in favor of the respondents regarding the admissibility of Modvat credit on air conditioning ... Modvat - Capital goods Issues:1. Admissibility of Modvat credit on air conditioning equipment parts.2. Interpretation of Rule 57Q of the Central Excise Rules, 1944.3. Definition of capital goods for the purpose of Rule 57Q.4. Application of Supreme Court judgments on the concept of 'in the manufacture of goods.'Detailed Analysis:1. The department appealed against the Commissioner (Appeals) order regarding the admissibility of Modvat credit on air conditioning equipment parts used for manufacturing empty hard shell gelatine capsules. The Commissioner (Appeals) set aside the A.C.'s order, citing errors in interpretation and self-contradictory findings. The department contended that air conditioners and refrigerators used by the assessee only alter temperature and do not qualify as capital goods under Rule 57Q.2. The department argued that Rule 57Q allows credit on capital goods used in production or processing for manufacturing final products. They claimed that the machines altering temperature, like air conditioners, do not meet the criteria under Rule 57Q. The department criticized the Commissioner (Appeal) for not passing a speaking order and providing irrelevant observations.3. The counsel for the respondents emphasized the importance of maintaining quality control in manufacturing pharmaceutical capsules. They detailed the intricate process of capsule production, highlighting the necessity of precise temperature and humidity control throughout. The counsel argued that air conditioning equipment is crucial for maintaining ambient parameters in the manufacturing premises, qualifying as capital goods under Rule 57Q.4. The judgment referred to Supreme Court decisions on the concept of 'in the manufacture of goods' to determine the eligibility of items as capital goods under Rule 57Q. Citing precedents, the judgment emphasized that items integral to the manufacturing process and commercially expedient for final product completion should be considered capital goods. Applying this principle, the judgment upheld the Commissioner (Appeals) order, dismissing the department's appeal based on the essentiality of the machinery items for the manufacturing process.