Century Rayon Chem Plant vs Commissioner of Central Excise

P.G. Chacko, Member (J)

These appeals are against denial of Modvat credit on Chlorine containers by the lower appellate authority. The appellants are also challenging the penalty imposed on them.

Examined the records and heard both sides. Learned counsel for the appellants submits that they had consistently claimed capital goods credit in respect of Chlorine containers for the material period; that when the department held the goods not to be eligible capital goods under Rule 57Q of the Central Excise Rules 1944, the appellants filed a declaration in 1996 under Rule 57G declaring the goods as inputs for Modvat credit; that the authorities below did not examine this claim of the appellants; and that the matter requires to be remanded. Without prejudice to this submission, counsel submits that the question whether Chlorine containers could be considered to be eligible capital goods under Rule 57Q has been settled by the Tribunal. In this connection, counsel has cited the following decisions : 1) DCM Shriram Consolidated Ltd. v. CCE, Surat [2000 (125) ELT 1252 (Tribunal)

2) CCE, Raipur v. Hukumchand Jute Inds. Ltd. [2001 (137) ELT 633 (Tri.-Kolkata)

The DR submits that the Modvat declaration under Rule 57G was filed by the party only after taking the credit in question. When the credit was taken, the declaration in force was the one filed under Rule 57T for capital goods credit. Therefore, the alternative claim for input-credit is not sustainable. Countering the point made by the DR, the learned counsel submits that, where the manufacturer of final product is denied capital goods credit under Rule 57A, the Central Excise authorities arc liable to grant the latter benefit. In this connection, reliance is placed on the Punjab and Haryana High Court''s decision in the case of CCE, v. Zenith Papers [2002 (146) ELT 518 (P&H).

I have considered the rival submissions. The appellants had taken Modvat credits on Chlorine containers under Rule 57Q during 1994 after filing the requisite declaration under Rule 57T. When the Department refused to recognize Chlorine containers as eligible capital goods under Rule 57Q, the party declared the goods as inputs under Rule 57G and claimed Modvat credit under Rule 57A. This is an admitted fact noted by the lower authorities. As per the ruling of the High Court, the authorities should have considered on merits the alternative claim made by the party. When the appellants had filed the original declaration under Rule 57T in respect of Chlorine containers, apparently, the department did not raise any objection. It was only after the party took Modvat credit on Chlorine containers under Rule 57Q that the Department issued show-cause notices to disallow the credit holding that the Chlorine containers were not eligible capital goods. In such a situation, the lower authorities had an obligation to examine the alternative claim of input credit on its merits. Paragraph 15 of the High Court''s judgment supports this view.

It is not disputed that the alternative claim of input credit was not examined on its merits by any of the lower authorities. In the circumstances, I am of the view that the original authority should examine the said claim of the party. For this purpose, the orders of the lower authorities are set aside and these appeals are allowed by way of remand. The original authority is directed to consider the assessee''s claim of input credit under 57A on its merits and pass a reasoned order after giving them a reasonable opportunity of being heard.