Per G.R. Sharma :

The ld. Collector in the impugned order held that :

"8. On close and careful consideration of the above two provisions, I am not convinced, I can buy the view, canvassed by the party in this case. The provision under Rule 57S (2), protection under which is sought by the party ensures that the credit taken on capital goods can be utilised for payment of duty on clearances of any of the final products but the same does not mean that the credit can be taken without using the capital goods at all. Provisions under Rule 57Q which spells out the scope of the scheme refers to allowing `credit of specified duty paid on the capital goods used by the manufacturer in his factory and for utilising the credit so allowed towards payment of duty of excise leviable on the final products..... subject to the provisions of this Section.' It follows therefore, the directions contained in Rule 57Q (1) determines the utilisation of the credit as permitted under Rule 57S (2). Reading of the provision makes it clear that utilisation of the credit of duty paid is available only on `capital goods - "used" as provided under Rule 57Q (1). "Used" in the context of capital goods would mean `installed' in the factory of the manufacturer for the purpose of carrying out manufacturing activities. Utilisation of the credit prior to installation is not permitted by the rule. As such, if one gives in to the view propounded by the party it would mean that capital goods can be acquired by the party and credits taken thereon would be utilised for payment of duty on whatever goods, the party may choose to clear, without the capital goods being ever `used' at all, as required under Rule 57Q. It would also mean that the party would be free to utilise the credits taken fully for clearance of its final products and then decide to dispose of the capital goods themselves by paying duty thereby postponing the payment of duty from their PLA. Modvat Scheme on capital goods is not an advance assistance scheme, as the party would like me to believe and approve. Such a position has no sanctity in law in the background of the prescription in Rule 57Q that the credit accrued is available on "capital goods used". I am, therefore, to hold that the utilisation in May 94 of the credit accrued on capital goods not used, i.e. not installed for manufacture, till July 1994, for payment of duty or clearances of final products was incorrect and properly liable for disallowance/recovery under Rule 57U of Central Excise Rules, 1944, read with Section 11A of the Central Excises & Salt Act, 1944. As, by the above incorrect utilisation of modvat credit accrued on capital goods, the party had violated the provisions of law, they are also liable to be penalised under Rules 173Q and 209 of the Central Excise Rules, 1944. However, keeping in mind the otherwise fine track record of tax compliance by the party, I am inclined to take a lenient view while fixing the quantum of penalty.

9. In view of my findings and conclusions foregoing, I order as below :