IMPORTANT POINT
For availing MODVAT credit, the capital goods must be used in manufacturing finished goods/plants.

JUDGMENT

ANIL R. DAVE, J.

1. Being aggrieved by the Final Order Nos. 301 & 302/2003 dated 2.5.2003 passed by the Custom, Excise & Gold (Control) Appellate Tribunal (hereinafter referred to as ‘the CEGAT’), South Zonal Bench, Chennai, the instant two civil appeals have been filed by the appellant-assessee. As facts of both the appeals are similar, these have been heard and finally decided together.

2. The circumstances in which the appeals have arisen, in a nutshell, are as under:

The appellant-assessee is a manufacturer of machinery for sugar and cement plants and parts thereof falling under Chapter 84 of the Central Excise Act, 1944. The appellant not only sets up sugar and cement manufacturing plant as per the specifications of the clients in India but also sets up such plants in foreign countries and here we are concerned with a plant which was set up in Vietnam.

3. The appellant-assessee entered into a contract with M/s Vina Sugars, Vietnam for supply and installation of a sugar plant at Vietnam with a capacity of 1250 TCD (Tons crushed per day). For the said purpose, the appellant had manufactured certain machines in its own factory which were to form part of the sugar plant and certain machinery, including electric cables etc., which were necessary for the plant were purchased by the appellant from other dealers-manufacturers and the said machines-equipments-cables etc., which had been purchased from others, along with appellant’s manufactured items, had been put in a container and the containers were transported to Vietnam so that the different parts of the machinery can be assembled and the plant can be set up at Vietnam.

4. In the course of its business, the appellant had availed the MODVAT credit on certain goods under the provisions of Rule 57 Q of the Central Excise Rules, 1944 (hereinafter referred to as ‘the Rules’) declaring them as ‘capital goods’ which had been purchased by the appellant from other manufacturers-dealers in the country and had sent to Vietnam along with other parts of machinery manufactured by the appellant.

5. The respondent-department was of the view that the MODVAT credit availed by the appellant on goods, parts of machinery & cables etc. purchased by it from local market and transported in a container along with other parts of machinery manufactured by it was not justified for the reason that the appellant had wrongly described such parts-equipments-cables etc. as ‘capital goods’ though the said goods were not covered under the definition of ‘capital goods’ under the provisions of Rule 57 Q of the Rules. The department was of the view that none of such purchased items had been used by the appellant in its factory premises in relation to manufacture of the final product manufactured by the appellant.

6. For the afore-stated reasons, show cause notices dated 29.03.1996 and 03.03.1997 were issued to the appellant, which had been dropped on considering the reply of the appellant. Upon review of the orders whereby the show cause notices had been dropped, the Central Board of Excise and Customs directed the Commissioner to file an appeal before the CEGAT and therefore, the Commissioner filed the appeals.

7. It was mainly submitted in the appeals on behalf of the department that the goods in respect of which the MODVAT credit was availed by the appellant, were not capital goods as per the provisions of Rule 57Q of the Rules. It was also submitted that such goods were not used in the factory premises of the appellant in any manufacturing process and therefore, the said goods were not capital goods as claimed by the appellant. It was also the case of the department that the said goods had been exported by the appellant along with parts of machinery manufactured by the appellant in a container and the said parts i.e. the parts purchased by the appellant had been exported in the same condition i.e. even without opening the packages or testing them. Thus, the role of the appellant was merely like a trader who h