Per V.K. Agrawal :

The issue involved in this appeal, filed by M/s. German Remedies Ltd., is whether the Capital Goods Credit under Rule 57Q of the Central Excise Rules 1944, is available to them in respect of the capital goods supplied to them by M/s. Madaus Pharmaceuticals (I) Pvt. Ltd. (in short Madaus).

2.1 Shri V. Sridharan, learned Advocate and Shri J.J. Bhatt, learned Advocate, submitted that the Appellants entered into an agreement with M/s. Madaus in 1995 to manufacture certain pharmaceutical formulations for Madaus on loan licencee basis; that M/s. Madaus provided them with capital goods, purchased by Madaus and the same were received by the Appellants under invoices which showed them as consignee by indicating "M/s. German Remedies Limited (A/c Madaus Pharmaceuticals (I) Pvt. Ltd.)"; that the capital goods thus received have been entirely used for the manufacture of formulations which were exported under bond in terms of Rule 13 of the Central Excise Rules; that the Commissioner of Central Excise, under the impugned order, disallowed the capital goods credit on the ground that M/s. Madaus had delivered the capital goods to the Appellants on bailment agreement and hence the capital goods were acquired by them on lease basis; that the Appellants ought to have resorted to the provisions of Rule 57R (3) and as the procedure under the said Rule had not been followed, Modvat Credit can not be allowed.

2.2 The learned Advocates, further, submitted that since they have satisfied all the conditions under MODVAT Rules, Modvat Credit on the capital goods cannot be denied; that all the capital goods in question are falling within the description of capital goods as given in Column (2) of the table below Rule 57Q (1) and all the formulations manufactured by them had been cleared for export under bond; that such clearance for export cannot be equated with full exemption as held in Reliance Industries Ltd. Vs. C.C.E., 1995 (9) RLT 317 (CEGAT)=1995 (78) E.L.T. 595 (T); that no claim for depreciation under Section 32 of the Income Tax Act, 1961 or under Revenue Expenditure of the Income Tax Act in respect of that part of the value of the capital goods which represent the amount of duty had been made.

3.1 The learned Advocates then mentioned that Rule 57R (3) as originally introduced by Notification No. 4/94-C.E. (N.T.) dated 1.3.1998 reads as under:

"No credit of the specified duty paid on the capital goods shall be allowed if such capital goods are acquired by a manufacturer on lease, hire purchase, loan or by any other transaction other than direct purchase, whereby the property in the said capital goods is not transferred to such manufacturer."

3.2 The learned Advocate mentioned that Rule 57R (3) as originally introduced was explicit and unambiguous and provided that unless there had been a direct purchase whereby the property in the capital goods was transferred to the manufacturer, no capital goods credit could be taken; that sub-rule (3) was substituted by Notification No. 26/94-C.E. (N.T.) dated 17.06.1994 and substituted sub-rule reads as under:

"The Credit of the specified duty paid on the capital goods shall be allowed if such capital goods are acquired by a manufacturer on lease, hire purchase or loan agreement, subject to such conditions and restrictions that may be specified in the notification issued by the Central Government."

3.3 Another Notification No. 27/94-C.E. (N.T.) dated 17.6.94 was also issued setting out the procedure to be followed.

3.4 The learned Advocates contended that the said amendment evidently was the measure of liberalisation and relaxation of rigors of the sub-rule as it stood on 01.03.1994; that the amendment clearly brings out the intention of the Government that ownership of capital goods was no longer the criteria for availing the credit; that the amended provisions only imposed additional condition in a case where the capital goods are acquired by way of lease, hire purchase or loan agreement; th