Circular No. 167/1/96-CX
dated 3/1/96
F.No. 330/2/95-TRU

Government of India

Ministry of Finance

Department of Revenue

(Tax Research Unit), New Delhi

Subject : Availment of Modvat Credit on capital goods – amendment of Rule 57Q- Notification No.1/96-CE (N.T.) – Regarding.

Please find enclosed a copy of the Notification No. 1/96*- CE(NT) dated 1.1.96 which has been issued to insert a new Clause (ii) in sub- rule (2) of rule 57Q of the Central Excise Rules, 1944.

2. The amendment has been made so as to provide that in respect of capital goods, other than those which are covered under sub-cluse (1) or items (ix) and (x) of sub-clause (d) of clause (1) of explanation to sub-rule (1) of rule 57Q and which are received in the factory of a manufacturer of final products on or after 1.1.1996, the credit shall not be taken in RG 23C, Part II until such capital goods have been installed or used in the factory of the manufacturer. In other words, the entry in RG 23C, Part II shall be made by the manufacturer only after such capital goods have been installed or have been installed or have been put to use in his factory. However, entry in Part I of the RG 23G can be made when the capital goods are received in the factory of the manufacturer.

3. If may be noted that in sub-rule (2) (ii), the words ” installed or, as the case may be, used in the manufacture of excisable goods” have been used. Accordingly, where the capital goods are of such a nature that they are not used for the manufacture of excisable goods but are used for other purposes in the factory. This would apply to capital goods like weigh bridges, generating sets, etc. However, for those capitals goods like machines and machinery which are used for manufacture of any intermediate or final product, the credit cannot be taken until such machines or machinery have been installed or actually used for such purposes.

4. It has been further provided that a certificate about the use of capital goods may be given by the manufacturer or by an officer designated by him for this purpose. The certificate may be given by the manufacturer or by any other officer, as may be, designated by the manufacturer (like the Production Manager) for this purpose. Such certificates should normally be accepted. However, on selective basis, the central excise officers may satisfy themselves that the credit has not been taken unless a particular capital goods has actually been installed or used by the manufacturer. Actual use of the capital goods intended to produce excisable goods will normally be reflected in the statutory production records.

5. Suitable trade notice may kindly be issued urgently bringing the above changes to the notice of the trade and the departmental officers may also be advised suitably.

T.R. Rustagi

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