Judgment:
1. Ld. Counsel for the appellants was heard on 6.8.2004. On that occasion, he cited certain decisions of the Tribunal in support of the appellants' case and wanted to cite further case law, for which purpose the matter was adjourned to this day. Today, an application of the appellant-company has come on record, saying that their Counsel is unable to attend to the case today. The appellants want an adjournment.
This request cannot be acceded to, as the case having been partly heard requires to be disposed of.
2. Heard the DR, who submits that the Commissionerate of Central Excise, Coimbatore has reported certain relevant facts in answer to specific queries made to them. This report is contained in a letter dated 14.6.2004 of the Superintendent of Central Excise (Review), addressed to the JDR, CESTAT, Chennai. A copy of this letter has been produced by the DR.3. The appellants had taken Modvat credit of Rs. 87,976 under Rule 57Q of the Central Excise Rules, 1944 on certain capital goods namely "Dispersion Kneader 10 ltrs. capacity with electrical panel and dust collector and one Buke 600 H Leather Shaving Machine", which was received in their factory in Aug.-Sept.'96. Subsequently, they removed the machines to their own Mother-roll-plant, situate 1/2 km away, where the machines were used for manufacture of intermediate products, which were in turn consumed in the manufacture of final product in their main factory. Subsequently, they debited the above credit at the instance of Audit party. However, afterwards, they filed a refund claim for the amount of Rs. 87,976, thinking that there was no necessity to reverse the credit. This claim for refund was rejected by the original authority on the ground that the above credit was not admissible to them as the capital goods were not used within the factory of manufacture of final product. The assessee preferred an appeal to the Commissioner (Appeals) against the decision of the original authority but the same did not succeed. Hence, the present appeal.
4. It was submitted by Ld. Counsel on the previous occasion that the appellants were entitled to avail Modvat credit on the capital goods in question, which were admittedly used in connection with the manufacture of final product. It was argued that the credit was not liable to be denied on the ground that a party of the manufacturing process was carried out outside the factory of production of final product. In this connection, Ld. Counsel has relied on the Tribunal's decision in CCE, Madurai v. India Cements Ltd., 2002 (84) ECC 680 (Tri.-Chennai) : 2002 (150) ELT 341 (Tri.-Chennai). Reliance was also placed on Collector of Central Excise, Pune v. Thermax Ltd., 1994 (74) ELT 891 (Tri). After examining the cited case law, I find that the decision in the case of Thermax Ltd. (Supra) is particularly relevant to the instant case. In that case, the respondents had brought the declared inputs and utilised them in the manufacture of their declared final product, but such manufacturing activities were carried out in a premises 500 yds. away from the licensed factory. The Department proposed to deny input duty credit to the assessee on the ground that the inputs had been utilised outside the licensed factory. This proposal was rejected by the Tribunal. The present appellants can legitimately claim support from this decision. In this context, it will also be useful to refer to what is contained in the report of the Commissionerate. Salient points in the report are the following: (i) The 'Mother Roll Plant' is a separate unit of the appellants and, in this unit, processes connected with the manufacture of Leather Nylon Sandwitch Beltings are undertaken. The capital goods in question are used for this activity in the Mother Roll Plant.
(ii) All processes being carried out in the Mother Roll Plant are only for the purpose of manufacturing activity in the main factory of the appellants and not for any other purpose.
(iii) The Mother Roll Plant is solely owned by the appellants and all the machines installed therein, the electric connection thereto etc., are all in the name of the appellants. The manufacturing facility installed in the Motor Roll Plant is not available in the main factory.
(iv) The Mother Roll Plant is run, controlled and supervised by the workers and staff of the main factory.
(v) The Mother Roll Plant is neither registered under the Sales Tax Act nor under the Factories Act. It has been exempted from licence control under Rule 174 of the Central Excise Rules, 1944.
5. Going by the above report of the Department, I have to hold that the Mother Roll Plant is, for all practical purposes, a part of the appellants' main factory. Whether it is included in the main factory plan is a concern of the Department and this aspect can be separately taken care of by them. For the present, I can reasonably that the subject capital goods were used by the appellants in the factory of production of final products and, accordingly, the appellants were entitled to avail Modvat credit of the duty paid thereon, under Rule 57Q. The decision in Thermax Ltd. (Supra) is in firm support of this view.
6. In the result, it is held that the appellants are entitled to refund of an amount equivalent to the Modvat credit, which they reversed in their account, relating to the capital goods in question. This refund shall be sanctioned to them in accordance with law. The impugned order is set aside and the appeal is allowed.