Customs, Excise and Gold Tribunal - Mumbai
Ballarpur Industries Ltd. vs Commissioner Of C. Ex. And Cus. on 3 July, 2003
Equivalent citations: 2003(156)ELT423(TRI-MUMBAI)
ORDER Gowri Shankar, Member (T)
1. The appellant-company received during 1996-97 various items of capital goods, required to manufacture coloured coated paper. The machinery was not installed and continued not to be installed to this date. The rules relating to Modvat credit, as they stood on the date df the receipt of the goods, required the capital goods to be installed before the duty paid on them to be taken as credit. The appellant did not take any part of the duty that it paid. On 1-4-2002, the rules relating to Modvat credit contained in Chapters AA and AAA of the Central Excise Rules relating to taking of credit in respect of inputs and capital goods were replaced. The new Rule 57AC provided for taking Cenvat credit of the duty paid on inputs as well as capital goods making no distinction. Rule 57AC provided in Sub-rule (ii){a) that 50% of the duty paid on capital goods may be taken as Cenvat credit in the financial year in which the goods were received in the factory. Sub-rule (ii)(b) provided that the balance of credit may be taken in any subsequent financial year subject to the condition that these goods (other than some exempted category thereon) were under the possession and use of the manufacturer. Sub-rule (ii)(c) contain the specific provision in respect of capital goods which have been received prior to these rules, but having been installed. They provided that 50% of duty paid to be taken as credit during the financial year 2000-2001. Acting on these rules, the appellant took as credit between April and December 2000, 50% of the duty paid on the goods which it received, but not installed. This was objected to by the department and issued notice proposing to deny the credit taken. Adjudicating on the notice the Commissioner held that credit was wrongly taken and ordered its recovery and imposed penalty equivalent amount. Hence, this appeal.
2. The reason advanced in the notice, and reflected in the order of the Commissioner for denying the credit is that capital goods have not been installed and therefore could not have been put to use. The Commissioner finds support on the phraseology contained in Rule 57AA(a) as meaning the goods specified therein "used in the factory on the manufacture of the final product."
3. The answer that the Counsel for the appellant gives is that the word "used" occurring in this sub-rule does not postulate a specific condition of actual use of the goods in question, but as descriptive in the sense that the goods should ultimately find use. He points out that throughout the period from 1986 onwards, when the Modvat rule came into force, credit of the duty paid on the inputs was permitted to be taken when they were received. Such inputs would invariably be used in the manufacture only some time after they were received and the interval between the receipt and use could some times extent to a long period. The definition of the goods "inputs" contained in Rule 57A, as it then stood, referred to inputs "used" in, or in relation to the manufacture of the finished product. He further relies upon a clarification in the trade notice contained in the circular B-4/7/200-TRU, dated 3-4-2000 of the Ministry of Finance, reproduced in 2000 (117) E.L.T. 337 which provides in Paragraph 8 that "Cenvat rules do not provide installation of capital goods as a pre-requisite for taking Cenvat credit. The credit can be taken as and when the capital goods are received in the factory." The circular later clarifies in the same paragraph that this credit can only be taken up to 50% of the total cenvatable duty. While the departmental representative reiterates what the Commissioner does, he is unable to answer this point.
4. A plain reading of the rule supports the view advanced by the appellant. Unlike the earlier rules, the rules were at the relevant time do not specifically provided for the capital goods in question to be installed before credit can be taken. The circular of the Ministry of Finance is explicit that installation is not a pre-requisite for taking credit. In the light of this rule and the circular explaining the rule, we are unable to find any basis for the view that the capital goods must first be installed before duty paid on them can be taken as credit. It is to be noted that the definition of "inputs" contained in Rule 57A also refers to them as "used in relation to the manufacture of final products." Applying the Commissioner's reasoning therefore, it would follow that credit of duty paid both on capital goods as well as on inputs can only be taken when they were actually put to use. This position in respect of inputs is not only contrary to standing practice with regard to the capital goods, it is directly the contradictory view expressed by the Board which is binding on the officers concerned.
5. The appeal is accordingly allowed and the impugned order set aside.