ORDER
S.S. Sekhon, Member (T)
1. The appellants herein are engaged in the manufacture of excisable goods. They have filed necessary declaration to avail credit of duty paid on “Capital Goods” received by them. Two such credits were availed, on return of the machines duly reconditioned by M/s. Mysore Kirloskar Ltd. to MICO. The credit amount was in respect of duty payment on spare parts, which were used in the reconditioning of the said machine by M/s. Mysore Kirloskar Ltd. the spares and hence credit taken is irregular. The notices also contended that the spares did not come within the ambit of Rule 57Q of CER, 1944. Para-2 in both the show cause notices is identical. The same is reproduced below:
Whereas it appears that M/s, MICO Ltd., Adugodi, Bangalore have received the reconditioned machine and not the spares as such. As per Rule 57Q/57T of C. Excise Rules, 1944, spares of the machines received by the manufacturers are eligible capital goods for taking credit. Whereas in the instant case M/s. Motor Industries Co. Ltd., Bangalore have not received the spares and hence the credit taken by them to the tune of Rs. 1,25,565/- is irregular inasmuch as the same does not come within the ambit of capital goods under Rule 57Q of Central Excise Rules, 1944.
In all vide the above two show cause notices totalling an amount of Rs. 2.51,130/- was sought to be disallowed under Rule 57Q of CER, 1944. Penalty was also proposed in both the show cause notices.
3. The Asst. Commissioner passed an Order. The finding portion of the order as appearing in page 2 of the order is reproduced below:
I have carefully gone through the show cause notice and the submissions made by the assessee in reply to the show cause notices and at the time of Personal hearing. The show cause notices have been issued by the Superintendent as the assessee has availed Modvat on cost of spares used for reconditioning of the machines. As per Rule 57T(3), a manufacturer can taken credit of the specified duty on capital goods, paid by a contractor or job worker who undertakes the job of initial set up, renovation, modernisation or expansion of the plant on behalf of the manufacturer of final products. In the present case, the assessee has availed Modvat on cost of spares used for reconditioning and there is no provision to allow the credit of duty paid on spares used by the job worker for reconditioning of the machine under Central Excise Rules, 1944. In absence of any express provision, I deny the credit and accordingly pass the following order.
And disallowed the credit and ordered refund of Rs. 2,51,130/- in RG 23 Part II.
4. The Commissioner (A), agreeing with the order of the Asst. Commissioner, dismissed the appellants’ appeal, holding, proviso to Rule 57T(3) does not apply to the facts of this case and hence credit is not available under Rule 57Q of CER, 1944. Aggrieved against the order of Commissioner (A). Aggrieved against this order, the appellants preferred an appeal before the CCE(A) Bangalore.
5. We have heard both sides and con0sidered the submissions and find:
(a) It is settled law that capital goods Modvat credit is eligible on the duty paid on parts, when such parts are used in the capital goods. They do not stipulate such use for maintenance repairs etc. only in the factory of the assessee availing credit. In the present case, there is no dispute about the parts having been used in the refurbished machinery which are there after used as capital goods. In the facts of this case, the parts have been incorporated and fitted to the refurbishing machinery, in the premises of the refurbisher and not in the premises of the appellants who wants to avail Modvat credit of the duty paid on such parts. We cannot deny credit only for the reason that the fitting/replacement parts did not take place in the premises of MICO.
(b) We find that in the case of Simbhaoli Sugar Mills Ltd. v. CCE, Meerut 2001 (138) ELT 1063, relied by the DR, it was held that expenses incurred on repair and labour charges on capital goods cannot be taken as Modvat credit. It also held, however, duty paid on spares, used for repairing the capital goods cannot be termed as capital goods itself and therefore duty paid on such spares and equipments or parts received by the receiver of the capital goods, cannot be permitted. We find, that this case law, as relied upon by the learned DR, does not take into consideration two member decisions of this Tribunal, itself, wherein Modvat credit on spares has been allowed on such spares which go in erecting the DG sets in the factories of the capital goods modvat availer, when such DG sets were being erected on job work basis in the premises. Issue involved herein has already been considered by the Tribunal in the following cases:
i) Aditya Cement Ltd., as per final Order No. A-369/02, dt. 06.03.02 in appeal No. E/2278/01-NB(D) : 2002 (103) ECR 385 (T)
ii) CCE Mumbai v. NRC Ltd. and Ors. 2001 (46) RLT 609
iii) Gujarat Ambuja Cement Ltd. v. CCE
We have followed these decisions, in our order No. 898/02 dt. 10.7.2002. Therefore we do not find any reason to deny the Modvat credit on spares, which are used in the machinery which is thereafter used as capital goods, even when such spares have been installed in the machinery on refurbishing it on a site, outside the factory.
(c) We find that Rule 57Q of the Central Excise Rules which reads as follows:
57Q. Applicability – (1) The provisions of this section shall apply to finished excisable goods of the description specified in the Annexure below (hereinafter referred to as the “final products”) for the purpose of allowing credit of specified duty paid on the capital goods used by the manufacturer in his factory and for utilizing the credit so allowed towards payment of duly of excise leviable of the final products, or as the case may be, on such capital goods, if such capital goods have been permitted to be cleared tinder Rule 57S, subject to the provisions of this section and the conditions and restrictions as the Central Government may specify in this behalf:
This underlined portion would indicate that so long as the items under dispute are capital goods as mentioned in Explanation (I) to this rules, which in this case there is no doubt, and used as such capital goods in the factory of the manufacturer the credit is to be allowed. In the case of spares and components one cannot insist on installation of such spares and components only in the manufacturer’s factory. In this view of the matter, we find no merits in the subject appeal. Following the same, we would find no merits in denial of the Modvat credit in the facts of these cases, we would therefore set aside the order and allow the appeal.
6. In view of our findings, the orders are set aside and appeal allowed with consequential benefits as per law.
(Pronounced in open court on 9.8.2002)