Madras Cements Ltd vs Commr.Of Central Excise

comprising November and December, 1999. 2

2. The Appellant, M/s Madras Cements Ltd.,

Alathiyur, hereinafter referred to as `the

Assessee' is the holder of Central Excise

Registration No.1/Cement/97 and is engaged in the

manufacture of cement and clinker coming within the

ambit of Chapter 25 of the Central Excise Tariff

Act, 1985, hereinafter referred to as `CETA, 1985'.

3. The Revenue's contention is that for the months

of November and December, 1999, the Assessee had

taken Modvat Credit on ineligible capital goods

amounting to Rs.8,42,843/-. The further contention

of the Revenue is that the Assessee was not

entitled to such credit, inasmuch as, it had taken

Modvat Credit on items which did not come within

the purview of capital goods under Rule 57Q of the

Central Excise Rules, 1944, although it was claimed

by the Assessee that the said items comprised

components, spares and accessories within the

meaning of Explanation 1(d) of Rule 57Q(1) relating 3

to capital goods. Accordingly, on 31st March, 2000,

the Assessee was issued show cause notice no.11 of

2000 asking it to show cause as to why the amount

of Modvat Credit of Rs.8,42,843/- should not be

disallowed and recovered under Rule 57U(3) of the

Central Excise Rules, 1944, and why interest at the

rate of 20% per annum should not be demanded under

Rule 57U thereof, if the Modvat Credit wrongly

availed was not paid within three months from the

date of receipt of the demand notice. The Assessee

was also asked to show cause as to why a penalty

should not be imposed under Rule 173Q(b)(b) of the

aforesaid Rules.

4. Replying to the said show cause notice, the

Assessee asserted that the inputs used in or in

relation to the manufacture of the final products

were eligible for Modvat Credit and that the ground

plan had been enclosed with the application for

grant of registration certificate indicating that 4

the mines were also situated in the factory complex

and were an integral part of the factory. The

Assessee contended that parts of the Bucket

Elevator (8434.00) and Wagon Loaders (8431.00) were

parts of machinery mentioned under serial nos.1 to

4 of the Table under Rule 57Q(1) and were eligible

for Modvat Credit as per the Board's Circular

No.276/110/96 TRU.

5. The show cause notice was adjudicated by the

Assistant Commissioner of Excise on 4th June, 2003,

and by his order No.22 of 2003, the Assistant

Commissioner disallowed Modvat Credit amounting to

Rs.4,31,749/- with regard to some of the items.

The Assistant Commissioner held that, inasmuch as,

the mandatory requirement stipulated in serial no.5

of the Table to Rule 57Q had not been complied

with, he was not inclined to allow Modvat Credit in

respect of the goods listed in serial nos.32 to 43

of the annexure to the notice. An appeal preferred 5

before the Commissioner (Appeals) against the order

of the Assistant Commissioner was rejected on 16th

October, 2003, upon holding that the items in

question were not capital goods and were not,

therefore, entitled to Modvat Credit admissible

under Rule 57A as well. The Commissioner (Appeals)

held that the credit was not admissible on the

goods listed under serial nos.32 to 43 of the show

cause notice.

6. The matter was then taken in appeal before the

Customs, Excise and Service Tax Appellate Tribunal,

South Zonal Bench, Chennai, by way of Appeal

No.E/108/04/MAS on 20th January, 2004, which upheld

the order of the Commissioner (Appeals).

Aggrieved by the order of CESTAT, the Appellant

filed the present Appeals before this Court.

7. Appearing for the Appellant/Assessee, Mr. A.K.

Ganguli, learned Senior Advocate, submitted that

the case of the Assessee was squarely covered by 6

the decision of this Court in Jaypee Rewa Cement

vs. Commissioner of Central Excise [(2001) 8 SCC

586], wherein explosives used for the extraction of

limestone for manufacture of cement were held to

fall under Chapter 36 of the Schedule to CETA,

1985, and while cement comes under Chapter 25 and

is a final product, explosives fall under Column 2

and that the Assessee therein would be entitled to

claim credit on the duty paid on explosives as they

were used for the manufacture of the intermediate

produce, namely, limestone which, in turn, was used

in the manufacture of cement.

8. Mr. Ganguli also submitted that the issues in

the instant case stood settled by the larger Bench

in Vikram Cement vs. Commissioner of Central

Excise, Indore [(2006) 2 SCC 351], to which the

correctness of the decision in the case of

Commissioner of Central Excise vs. J.K. Udaipur

Udyog Ltd. [(2004) 7 SCC 344] had been referred. 7 The Three-Judge Bench went on to hold that the

Schemes of the Modvat and Cenvat were not different

and that the conclusion of the Court in the J.K.

Udaipur Udyog Ltd.'s case (supra) that the decision

in Jaypee Rewa Cement's case (supra) would have no

application to the case was not accepted on the

ground that the Cenvat Rules only reflected the

Modvat Rules where the Rules had simply been re-

arranged. Mr. Ganguli submitted that, inasmuch as,

the items sought to be excluded by the Assistant

Commissioner were components and accessories used

in the mining process for manufacture of the final

product, and were covered by Sub-heading No.84.31

to the Table annexed to Rule 57Q after its

substitution by Notification No.6/97-CE(NT) dated

1.3.1997, as subsequently corrected on 1.3.1997,

10.3.1997 and 9.4.1997, the Assessee would be

entitled to the benefits of Rule 57Q of the Central

Excise Rules, 1944 and the impugned orders of the

Revenue as well of the High Court were liable to be 8

quashed.

9. On behalf of the Respondent, Commissioner of

Central Excise, it was submitted by learned

Additional Solicitor General, Mr. Gaurav Banerjee,

that although the Assessee had claimed the benefit

of the entry at serial No.5 of the Table annexed to

Rule 57Q(1) in respect of the capital goods

mentioned at serial nos.32 to 43, it had failed to

specify the tariff heading under which their

machinery/equipment, of which the subject capital

goods were claimed to be accessories were

classifiable, nor could they even disclose the

identity of such machinery and equipment to the

authorities. Mr. Banerjee also submitted that at

no stage of the proceedings before the Tribunal or

the High Court was any attempt made by the Assessee

to identify the machinery in the absence whereof

they would not be eligible for Modvat Credit. It

was urged that as had been held in the decision of

this Court in Vikram Cement vs. Commissioner of 9

Central Excise, Indore [(2005) 7 SCC 74], in order

to be eligible for Cenvat Credit on capital goods

under the Cenvat Credit Rules, 2001 and 2002, which

requires, inter alia, that such goods must be used

in the factory for the manufacture of the final

product. Accordingly, an item not satisfying the

said condition could not be brought within the

scope of "capital goods" by any interpretive

process, whereby claim for Cenvat Credit on the

capital goods in question could be entertained. Mr. Banerjee submitted that since the said

decision, as also the decision in the case of J.K.

Udaipur Udyog Ltd.'s case (supra), were available

at the relevant time, the impugned decision arrived

at by the High Court could not be assailed on

account of the subsequent decision of the

Constitution Bench on the reference made with

regard to the views expressed in J.K. Udaipur Udyog

Ltd.'s case (supra).

10

10. Mr. Banerjee urged that the impugned judgment

of the Tribunal ought not, therefore, to be

interfered with and the appeals of Madras Cements

Ltd. were liable to be dismissed.

11. As indicated initially, the short point

involved in these appeals relates to the

eligibility of the Assessee for Modvat Credit on

certain capital goods which were said to have been

used as components, spares and accessories in the

manufacturing process of the Appellant for the

period in question.

12. In order to avail of Modvat/Cenvat credit, an

Assessee has to satisfy the Assessing Authorities

that the capital goods in the form of component,

spares and accessories had been utilized during

the process of manufacture of the finished product.

13. Admittedly, in this case the Appellant was not

able to identify the machinery for which the goods 11

in question had been used. In the absence of such

identification, it was not possible for the

Assessing Authorities to come to a decision as to

whether Modvat Credit would be given in respect of

the goods in question. There is no difficulty with

regard to the decisions rendered in Jaypee Rewa

Cement's case (supra) or the Constitution Bench

judgment in Vikram Cement's case (supra). The

question is whether the Assessee was able to

specify to the Assessing Authorities that the goods

in question had been used as components, spares and

accessories for the manufacture of the finished

product. The same holds good in respect of Mr.

Ganguli's assertion that the goods in question were

included under paragraph 84.31 of the Table set out

in Rule 57Q of the Central Excise Rules, 1944. 12

14. We are not, therefore, inclined to interfere

with the orders of the Tribunal and the Appeals are

accordingly, dismissed.

15. There will be no orders as to costs.

................................................J. (ALTAMAS KABIR)

................................................J. (CYRIAC JOSEPH) New Delhi Dated: 6TH May, 2010.