By TIOL News Service

RAIPUR, DEC 07, 2012: THE respondent assessee is engaged in manufacture and sale of "welding electrodes" and claimed MODVAT credit under Rule 57-Q on "Hot Melt Unit" as capital goods. According to assessee, the item Hot Melt Unit was used by the assessee while manufacturing welding electrodes and hence they were entitled to claim MODVAT credit on this item as capital goods under the Rules.

The case of the department was that the assessee did not use the item Hot Melt Unit in its manufacturing process but it was used by the assessee for packing and printing the cartons for keeping the welding electrodes in the cartons. And therefore, MODVAT credit cannot be taken under Rule 57-Q ibid.

The adjudicating authority denied the credit but the lower appellate authority decided the issue in favour of the assessee. The Revenue appeal was also dismissed by the Tribunal and hence the Revenue is before the Chattisgarh High Court.

The High Court dismissed the reference application holding that it did not involve any referable question in view of the fact that the issue already stood decided by the Supreme Court in the case of Collector of Central Excise, Calcutta-II v. Eastend Paper Industries Ltd. (2002-TIOL-379-SC-CX) and (Dharampal Satyapal v. Commissioner of Central Excise, Delhi- I, New Delhi) (2005-TIOL-75-SC-CX-LB) inasmuch as the item "Hot Melt Unit" was admittedly used by the assessee while packing their finished goods - "welding electrodes" and since packing is held to be one of the essential components of the manufacturing process of the finished goods and being in the nature of incidental or/and ancillary to the main manufacturing activity, the assessee was rightly held entitled to claim MODVAT credit on the item - "Hot Melt Unit" treating the same as capital goods under the Rule 57-Q ibid.

Incidentally, the High Court had the following suggestions for the Tribunal -

"(9) Though while deciding the issue, the Tribunal did not refer to any case law on the subject, yet the view taken by the Tribunal is in accordance with the law laid down by the Supreme Court. In fact, it would have been better if the Tribunal had taken note of the law on the subject laid down by the Supreme Court and then should have expressed their view.

(10) We consider it apposite to mention that whenever, any issue is decided by the Supreme Court or/and High Court then it has to be first referred to by the Authorities/Tribunals and then decision should be rendered on the issue involved in the case keeping in view the law laid down in decided cases."

In fine, the reference application was dismissed.

(See 2012-TIOL-970-HC-CHATTISGARH-CX)