Circular No. 88/88/94-CX
dated 26/12/94

F.No. 267/110/94-CX.8
Government of India
Ministry of Finance
Department of Revenue
Central Board of Excise & Customs

Subject: Modvat Credit of duty paid on Capital Goods

The Board is in receipt of the references from the field formations to amend rule 174 and the rules under section AAAA of Chapter V of the Central Excise rule so that the Modvat credit should be allowed on receipt of the capital goods during setting up a factory for manufacturer of the final products. It has been stated that in these cases difficulty is experienced because during initial setting up, the “factory” as such may not be physically in existence and that it may take several years before the factory is fully set up for manufacture of the final products.

2. The issue has been examined. It is observed that credit of the duty paid on capital goods is admissible only when such capital goods enter into production, therefore, it will not be appropriate to allow the credit at the stage of initial setting up of a factory (where the factory is not yet is existence). The manufacturer intending to take credit of he duty paid on capital goods in such a case shall continue to file a declaration as required under Rule 57Q, irrespective of the fact that such a factory has not come into existence and/ or got registered. The credit on the capital goods received at the time of establishment of such a factory can be availed only after the factory commences production and is registered. The credit so availed can be allowed to be utilised only for payment of duty on goods manufactured and cleared by such a factory.

(I.P. Lal)
Deputy Secretary to the Govt. of India

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