Commnr. Of Central Excise, Jaipur vs M/S Rajasthan Spinning & Weaving Mills Ltd.

respect of steel plates and M.S. channels used in the fabrication of chimney for the diesel generating set, by treating these items

as capital goods in terms of Rule 57Q of the Central Excise

Rules, 1944 (for short "the Rules").

2.Briefly stated, the material facts, giving rise to the present

appeal, are as follows:

The assessee is a public limited company engaged in the

manufacture of yarn. They availed MODVAT credit on "capital

goods" described in the Table given below Rule 57Q in respect

of steel plates and M.S. channels used by them for erection of

chimney for the diesel generating set, falling under Chapter 85

of the Central Excise Tariff Act, 1985 (for short "the Tariff

Act").

3.A show cause notice, dated 20th August 1999, was issued to

the assessee, alleging therein that MODVAT credit availed of

on steel plates and M.S. channels used in the fabrication of

chimney, was inadmissible as the subject items were not

"capital goods", as described in the said Table. Therefore,

MODVAT credit had been wrongly availed of by the assessee.

In reply to the show cause notice, the assessee pleaded that the

items in question being components of chimney which in turn

2 was an accessory of the diesel generating set, falling under

heading 85.02, they also qualify the test of "capital goods"

specified against serial No.5 of the Table, and therefore,

MODVAT credit in respect of the said items was clearly

admissible. It was asserted that chimney was a vital part of the

generating set for discharge of gases arising out of burnt fuel,

mandatory under the Pollution Control laws.

4.The Assistant Commissioner was of the view that since steel

plates and M.S. channels were not used as input in the

manufacture of final product, these could not be covered under

any of the chapter headings in the Table under Rule 57Q,

MODVAT credit on the said items was inadmissible. He,

accordingly, disallowed the MODVAT credit amounting to

Rs.1,16,650/- availed of by the assessee and imposed a penalty

of Rs.2000/-. Being aggrieved, the assessee filed an appeal

before the Commissioner (Appeals) but without any success on

the question of MODVAT credit. The Commissioner (Appeals),

however, deleted the penalty levied on the assessee. The

assessee took the matter further in appeal to the Tribunal. The

Tribunal has come to the conclusion that since the chimney is

3 used as an accessory to the diesel generating set, and steel

plates and M.S. channels were used in the fabrication of

chimney these items also fall within the ambit of serial No.5 of

the said Table and therefore, MODVAT credit on these items

could not be denied. Not being satisfied with the order of the

Tribunal, the Revenue is before us in this appeal.

5.Mr. Harish Chandra, learned Senior Counsel appearing for

the Revenue submitted that the Tribunal has failed to

appreciate that "capital goods" as described in the Table under

Rule 57Q would include only those goods which are specified

against serial Nos.1 to 4 of the said Table and, thus, the

"capital goods" in the present context cover only the diesel

generating set and its components, spares and accessories and

not steel plates or M.S. channels, which are independently

classifiable under Chapter Sub-heading 7208.11 and 7216.10

respectively. It was argued that both the subject items were

not used as input in manufacture of final product so as to make

them eligible for MODVAT credit in terms of serial No.5 of the

said Table. Learned counsel thus, urged that the order of the

Tribunal deserves to be set aside.

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6.Per contra, Mr. B.L. Narsimhan, learned counsel appearing

on behalf of the assessee supported the decision of the Tribunal.

He submitted that the issue sought to be raised by the Revenue

in this appeal stands concluded in favour of the assessee by a

decision of this Court in Commissioner of Central Excise,

Coimbatore & Ors. Vs. Jawahar Mills Ltd. & Ors.1, wherein

observing that the exemption notification must be so construed

as to give due weight to the liberal language it uses and that

any goods that may be used in the factory of the manufacturer

of final product would be "capital goods" and would be entitled

to MODVAT credit. It was, thus, asserted that the said items

used in the fabrication of chimney, which in turn is an

important component of diesel generating set, qualify the test of

"capital goods" and would be entitled to MODVAT credit.

7.The short question arising for determination is whether the

assessee was right in availing MODVAT credit in respect of the

afore-stated items by treating them as "capital goods" in terms

of Rule 57Q?

1 (2001) 6 SCC 274

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8.Rule 57Q was substituted by Notification No.6/97-C.E. (N.T.)

dated 1st March, 1997. It enables the manufacturers of

specified goods to claim MODVAT credit of duty paid on capital

goods used by them in the factory for manufacture of final

product. The Rule, insofar as it is relevant for this case, reads

as under:

"RULE 57Q. Applicability.- (1) The provisions of this section shall apply to goods (hereafter in this section, referred to as the "final products") described in column (3) of the Table given below and to the goods (hereafter, in this section, referred to as "capital goods"), described in the corresponding entry in column (2) of the said Table, used in the factory of the manufacturer of final products.

TABLE S.No Description of capital goods Description of falling within the Schedule final products . to the Central Excise Tariff Act, 1985 (5 of 1986) and used in the factory of the manufacturer (1) (2) (3)

1. ...................... .............

2. ......................

3. All goods falling under chapter 85 (other than those falling under heading Nos. 85.09 to 85.13, 85.16 to 85.31, 85.39 and 85.40);

4. ......................

5. Components, spares and accessories of the goods

6 specified against S. Nos. 1 to 4 above;"

9.The language of Rule 57Q is clear and unambiguous. It

applies to the final products described in column (3) of the

Table under the Rule as also to other goods, referred to as

"capital goods", described in the corresponding entry in column

(2) of the said Table, used in the factory of the manufacturer of

final product. The parties are ad idem that diesel generating set

falls under Chapter 85 under Heading No. 85.02, as described

at serial No.3 of the afore-extracted Table. Similarly there is no

dispute that chimney attached with the generating set is

covered by the items described in serial No.5 thereof. However,

the controversy centres around the question whether the steel

plates and M.S. channels used in the fabrication of chimney

would fall within the purview of serial No.5 of the Table below

Rule 57Q.

10.Having examined the question in the light of the language

employed in Rule 57Q and the case law on the point, we are of

the opinion that the appeal is devoid of any merit.

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11.In Jawahar Mills Ltd. (supra), heavily relied upon by the

learned counsel for the assessee, the question which came up

for consideration was whether the claim of MODVAT credit by

some manufacturers in respect of certain items by treating

them as capital goods in terms of Rule 57Q was in order. Some

of the items under consideration were power cables, capacitors,

control panels, cable distribution boards, air compressors, etc.

The Court examined the question in the light of the definition of

capital goods given in Explanation to Rule 57Q, which read as

follows:

"capital goods" means--

(a) machines, machinery, plant, equipment, apparatus, tools or appliances used for producing or processing of any goods or for bringing about any change in any substance for the manufacture of final products;

(b) components, spare parts and accessories of the aforesaid machines, machinery, plant, equipment, apparatus, tools or appliances used for aforesaid purpose; and

(c) moulds and dies, generating sets and weighbridges used in the factory of the manufacturer."

12.Inter alia observing that capital goods can be machines,

machinery, plant, equipment, apparatus, tools or appliances if

any of these goods is used for producing or processing of any

8 goods or for bringing about any change in the substance for the

manufacture of final product, although this view was expressed

in the light of the afore-noted definition of "capital goods" in the

said Rule, which is not there in Rule 57Q, as applicable in the

instant case, yet the "user test" evolved in the judgment, which

is required to be satisfied to find out whether or not particular

goods could be said to be capital goods, would apply on all fours

to the facts of the present case. In fact, in para 6 of the said

judgment, the Court noted the stand of the learned Additional

Solicitor General, appearing for the Revenue, to the effect that

the question whether an item falls within the purview of

"capital goods" would depend upon the user it is put to.

13.Applying the "user test" on the facts in hand, we have no

hesitation in holding that the steel plates and M.S. Channels,

used in the fabrication of chimney would fall within the ambit

of "capital goods" as contemplated in Rule 57Q. It is not the

case of the Revenue that both these items are not required to be

used in the fabrication of chimney, which is an integral part of

the diesel generating set, particularly when the Pollution

Control laws make it mandatory that all plants which emit

9 effluents should be so equipped with apparatus which can

reduce or get rid of the effluent gases. Therefore, any

equipment used for the said purpose has to be treated as an

accessory in terms of serial No.5 of the goods described in

column (2) of the Table below Rule 57Q.

14.We are, therefore, of the opinion that the Tribunal was

correct in law in holding that the assessee was entitled to avail

of MODVAT credit in respect of the subject items viz. steel

plates and M.S. channels used in the fabrication of chimney for

the diesel generating set, by treating these items as capital

goods in terms of Rule 57Q of the Rules.

15.For the foregoing reasons, we find no substance in the

appeal preferred by the Revenue. The same is dismissed

accordingly. Parties are left to bear their own costs.

..................................

J. (D.K. JAIN)

..................................J. (C.K. PRASAD)

10 NEW DELHI;

JULY 9, 2010.

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