1. This is an appeal against disallowance of Modvat credit, imposition of penalty and demand of interest. Along with the Appeal the applicant has filed a Stay Petition for waiver of pre-deposit of duty and penalty and staying recovery thereof.
2. Arguing the case for the applicant Shri A.R. Madhav Rao, learned Advocate submits that the applicant is engaged in the manufacture of cement. They placed purchase order for supply of DG Set from Wartsila India Ltd. The applicant took Modvat credit as and when the items required for DG set were received in the factory premises of the applicant. The Department alleged that the Modvat credit could not be taken by the applicant as M/s. Wartsila was to supply the DG set and install it in the factory premises of the applicant. In reply the Counsel submitted as the applicant stated that stipulation in the contract was that engine, alternator and other parts constitute DG set were to be delivered at the applicant's factory premises and since the goods were received in the factory premises of the applicant the applicant was fully entitled to take Modvat credit on the parts of DG set received in the factory premises of the applicant. Learned Counsel submits that during the material period the goods were specified items under Rule 57Q read with Explanation (1)(b) and (d) of the Central Excise Rules, 1944. Learned Counsel submits that proviso of Sub-rule (3) of Rule 57T provides, "Provided that the Assistant Commissioner may allow, on sufficient cause being shown the manufacturer to take credit of the specified duty on capital goods paid by the contractor or job worker who undertakes the job of initial setting up, renovation, modernisation or expansion of the plant on behalf of the manufacturer of final products, subject to such procedure and conditions as may be specified by the Commissioner or the Central Board of Excise and Customs." Learned Counsel submits that similar was the provisions of Rule 57T(7) subsequently. Learned Counsel also submits that Rule 57R(2) provides that, "Credit of the specified duty allowed in respect of any capital goods shall not be denied or varied on the ground that any intermediate products have come into existence during the course of manufacture of the final product and that such intermediate products are for the time being exempt from the whole of the duty of excise leviable thereon or chargeable to nil rate of duty." Learned Counsel submits that above position in law clearly provides for taking of Modvat credit on parts and spares essential for installation of a DG set by the manufacturer of the final product. In the instant case the final product is similar and even if the DG set happens to be exempt for the time being Modvat credit on the inputs and components needed for installation of a DG set will be eligible for Modvat credit.
Learned Counsel submits that similar issue came up before the Tribunal in the case of Gujarat Ambuja Cement Ltd. v. CCE, Chandigarh reported in 2001 (130) E.L.T. 129 (T) = 2000 (93) ECR 226 and the Tribunal in this case held, "Commissioner has erred in holding that WDIL is the manufacturer and not GACL who are the owners of all parts and components used in DG set. Modvat credit is admissible to GACL in terms of Rule 57A read with Rule 57B(2)(i) and Rule 57T(7). The Tribunal held that DG sets in question are power plants. M/s. WDIL was engaged for initial setting up of this captive power in the factory of GACL. Modvat credit was taken by GACL on the capital goods correctly. They were covered under Rule 57Q (Serial No. 5 of the Table), Rule 57D(2) and Rule 57R(2). Impugned order set aside." Learned Counsel submits that this decision of the Tribunal was further followed by the Tribunal in the case of CCE, Mumbai-III v. NRC Ltd. reported in 2001 (135) E.L.T.1012 (T) = 2001 (46) RLT 609 holding that engine and alternator purchased by NRC Ltd. though contractor assembled them into generating set in NRC premises, NRC is entitled to Modvat credit of duty paid on engine and alternator, though generating set is exempt from duty as engine and alternator are to be treated as component of machine, that is, generating set used by, respondents in the manufacture of dutiable final product. Learned Counsel prays that pre-deposit may be waived and recovery thereof may be stayed.
3. Shri Rajiv Tandon, learned SDR opposes the request and submits that a look at the contract at page 29 of the paper book shows that the applicant had placed purchase order for supply of DG set with common auxiliary. He submits that since the order was for DG set, therefore, the applicant could not take credit on parts and components of DG set as the title in the parts vested in the contractor and not in the applicant. Learned DR submitted that decision of the Tribunal in the case of Gujarat Ambuja Cement Ltd. is distinguishable inasmuch as in the case of Ambuja Cement it was parts and components that were coming and that were purchased by the applicant and not DG set as in the present case. Learned DR submits that Commissioner while adjudicating the case brought out this aspect clearly. He, therefore, prays that applicant was not entitled to take Modvat credit and therefore, should be directed to deposit the entire amount of duty, penalty and interest.
4. We have heard the rival submissions. On careful consideration of the submissions made we note that an agreement was entered into by the applicant with M/s. Wartsila Diesel India Ltd. In the contract the subject matter was indicated 'supply of one number DG set with common auxiliaries for the cement plant'. The fact remains that further description indicated engine, alternator, auxiliaries etc. Thus we find that DG set, though comprises mainly of engine and alternator but a number of auxiliaries were required for installation of DG set. Thus we note that the order was not for a fully assembled diesel set with engine and alternator but also with auxiliaries. Thus we find that ratio of the judgment of this Tribunal in the case of Gujarat Ambuja Cement Ltd. and NRC Ltd, prima facie covers the facts of the present case. In the circumstances, we waive the pre-deposit of duty and penalty.