Per Shri V.P. Gulati :

In as much as these two appeals involve a common issue these are taken up together for disposal. The issue in the appeals relates to availability of MODVAT Credit in respect of capital goods i.e. Carding Unit and spares in terms of Rule 57Q of the Central Excise Rules. These machines are required for manufacture of cotton carded/combed which the assessee has claimed to be an intermediate product for the manufacture of yarn which is a notified product under Rule 57Q. The lower appellate authority has held that since the goods classifiable under heading 5202 were non-notified prior to 21.10.94, MODVAT Credit under Rule 57Q for the machinery in question would not be available and that proportionate credit will be available after 21.10.94. The original authority held that cotton carded/combed is marketable commodity and which finding has been affirmed by the lower appellate authority. Against this finding of the lower appellate authority no appeal has been filed and therefore this finding of the lower appellate authority has become final. In these two cases, the issue therefore to be decided is in the context of this finding that cotton carded/combed so far as these two cases has to be held to be marketable.

2. The learned DR as pleaded that admittedly cotton carded/combed has emerged as an intermediate product and in respect of these machines in terms of Rule 57Q, MODVAT Credit would be available only if the product in question which emerged as intermediate product was specified under Rule 57Q. At the relevant time, under tariff 5202.00 cotton carded/combed was not specified. He, therefore, pleaded that MODVAT Credit in respect of these machines could not have been allowed. He has pleaded that the lower appellate authority has given the respondents, the benefit of MODVAT Credit with effect from 21.10.94 in terms of Rule 57S. He has pleaded that Rule 57S was provided for the purpose of splitting of the MODVAT Credit between the person who originally purchased the machine and the person to whom thereafter it was sold. He has pleaded that the question of taking MODVAT Credit in respect of goods which were not eligible for the benefit in terms of Rule 57Q, from a subsequent date, would not arise as the same is not provided for under the rules.

3. The learned Consultant adopted the reasoning in the impugned order.

4. We have considered the pleas made by both the sides. Admittedly on the finding of the lower authority the goods were marketable and therefore the goods falling under 5202.00 stood excluded at the relevant time when the machine was purchased from the purview of rule 57Q. Since by use of these machines, no specified item emerged at the relevant time of purchase & receipt in the factory MODVAT Credit in respect of the same under Rule 57Q could not have been allowed. When no MODVAT Credit could be taken at the time when the goods were received, the question of making available a portion of MODVAT Credit thereafter when the item 5202 came to be included later under Rule 57Q would not arise. The availability of MODVAT Credit has to be determined at the time when the goods are received in the factory and if no MODVAT Credit was available at that time, the question of subsequently making available any MODVAT Credit would not arise. In the facts and circumstances, therefore, in as much as the finding of the lower appellate authority that the cotton carded/combed is marketable has become final, we hold that the logical conclusion of that is that MODVAT Credit in respect of the goods in question could not have been taken in respect of the goods either before 21.10.94 or after 21.10.94. We, therefore, allow the appeal of the Revenue.