Saraswati Sugar Mills vs Commnr. Of Central Excise, Delhi-Iii

Saraswati Sugar Mills .......... Appellant

versus

Commissioner of Central Excise, Delhi-III .........Respondent

J U D G M E N T

H. L. DATTU, J.

1. This appeal is directed against the final Order of the Customs

Excise and Gold (Control) Appellate Tribunal, New Delhi

[hereinafter referred to as `the Tribunal'] dated 10.12.2002. By the

impugned order, the Tribunal has confirmed the order passed by

the Commissioner of Central Excise (Appeals), which has affirmed

the order of the Assistant Commissioner of Central Excise, levying

the duty and penalty under the Central Excise Act, 1944

(hereinafter referred to as `the Act').

THE ISSUE :

2. The bone of contention between the Appellant-assessee

[hereinafter referred to as `the assessee'] and the Respondent

[hereinafter referred to as `the Revenue'] can be crystallized thus:

Whether the Iron and Steel structures manufactured and used

captively in the factory for installation of the Sugar manufacturing

plant by the assessee can be classified as capital goods under Rule

57Q of the Central Excise Rules, 1944 [hereinafter referred to as

"the Rules"].

THE FACTS :

3. The relevant facts for the purpose of this appeal are:- The assessee

is the manufacturer of Sugar and Molasses. The assessee is availing

MODVAT credit facility on the excise duty paid for the capital

goods used in the factory for manufacturing process under Rule

57Q of the Rules. In April 1999, the assessee, in order to

modernize the manufacturing process of sugar and molassess, has

installed new machineries by replacing the old one. However,

certain machineries like cane milling plant, clarification plant,

evaporator and pan boiling plant, power generation plant etc.,

which are specified as capital goods in terms of Serial Nos. 2 and 3

of the Table below Sub-Rule 1 of Rule 57Q of the Rules, required

2

the support of structural items for their installation. In view of this,

the assessee started the manufacturing of iron and steel structures,

after purchasing excise duty paid iron and steel sheets, angles, nuts

and bolts etc. for the installation of the said machineries.

Thereafter, the assessee has filed a declaration under Rule 57Q of

the Rules declaring Iron and Steel structures under sub-heading

7308.90 of Chapter 73 as capital goods. The assessee has also filed

classification declaration under Rule 173B of the Rules dated

09.07.1999 for the Iron and Steel structures classifying it under

sub-heading 7308.90 of Chapter 73 and claiming exemption under

the Notification No. 67/95-CE dated 16.03.1995 [hereinafter

referred to as "Notification"]. The said Notification exempts the

capital goods, as defined in Rule 57Q of the Rules, manufactured

and used within the factory from the excise duty leviable on such

goods as specified in the schedule to the Central Excise Tariff Act,

1985 [hereinafter referred to as "the Tariff Act"]. Subsequently,

the Assistant Commissioner, Central Excise Division, Ambala vide

Office letter dated 20.01.2000 has issued a Show Cause Notice to

the assessee for short payment of excise duty to the tune of `

28,14,464/- for the period July, 1999 to September, 1999 as

Notification is not applicable to the iron and steel structures. The

said Show Cause Notice was replied by the assessee vide its reply

3

dated 24.02.2000 claiming the benefit of Exemption Notification.

The assessee has also produced various photographs, drawings and

Certificate of the Chartered Engineers during the personal hearing

before the Assistant Commissioner dated 21.03.2000 in order to

show that the iron and steel structures are components of

machinery and quintessential for its effective functioning.

However, the Assistant Commissioner, vide its order dated

31.03.2000, confirmed the duty demand and imposed a penalty of `

5,00,000/- on the ground that the Notification is not applicable to

the said Iron and Steel structures as they are neither inputs used in

relation to the manufacture of final product nor capital goods as

defined in Column 2 of the Table given below Sub-Rule (1) of

Rule 57Q of the Rules. The assessee, aggrieved by the order of

Assistant Commissioner, preferred an appeal before the

Commissioner of Central Excise (Appeals). The Commissioner

(Appeals), vide its order dated 23.11.2011, confirmed the order of

the Assistant Commissioner and rejected the appeal on the ground

that the said Iron and Steel structures form the part of the building.

Being aggrieved, the assessee preferred an appeal before the

Tribunal, the same was partly allowed. The Tribunal, vide its

impugned order dated 10.12.2002, reduced the amount of penalty

to `1,00,000/- and affirmed the demand of duty on the ground that

4

Chapter 73 of Schedule to the Tariff, Act under which the said Iron

and Steel structures fall, has not been specified in the Table below

Rule 57Q of the Rules and the machineries purchased by the

assessee were complete in itself. The reasoning of the Tribunal is

as under:

"We have considered the submission of both the sides.

The Ld. Advocate had shown us certain photographs

where the impugned structures were used. According

to him these structures form integral part of the

machinery concerned without which the machinery

cannot function. On query from the Bench, the Ld.

Advocate has fairly conceded that the various

machineries, which have been purchased by them,

were complete. Accordingly, we do not find any

substance in his submissions that these structures are

components of the various machine/machineries.

Notification No.67/95-CE provides exemption from

payment of duty to the capital goods as defined in

Rule 57Q if they are used in or in relation to the final

products which are chargeable to duty. The

appellants have not succeeded in establishing that the

impugned structures are components of the capital

goods as specified in the table below Rule 57Q of the

Central Excise Rules. Chapter 73 of the Central

Excise Tariff under which the impugned goods fall

has also not been specified in the table below Rule

57Q. The ratio of the decision in the case of Bhanu

Steels is not applicable as therein the appellants had

explained that the goods were spare parts for plant

and machinery installed in their factory. In the

present matter, the appellants have not proved that

the impugned goods are components of the

machines/machineries. The ratio of the decision in

the case of Wainganga is not applicable as the goods

were manufactured in the factory and further these

were not trusses, column and purlines as was the fact

in the Wainganga case. We, therefore, hold that the

5

benefit of Notification No.67/95 is not available to the

appellants. Accordingly, we uphold the demand of

duty of Excise confirmed against them. However,

taking into consideration the facts and circumstances

of the case, we are of the view that the penalty

imposed is on the higher side and the interest of

justice will be met, if the Appellants are directed to

pay a penalty of only Rs.1 lakh. We order

accordingly. The appeal is thus partly allowed."

THE COMPETING ARGUMENTS :

4. The learned counsel Shri. V. Lakshmi Kumaran submits that the

Iron and Steel structures are fabricated by the assessee in its factory

and subsequently, used within the factory for installation and

effective functioning of the sugar manufacturing machineries

which falls under Serial NoS. 2 and 3 of the Table to Rule 57Q as

capital goods. The said Iron and Steel structures are in the nature of

components of the sugar manufacturing plant. Therefore, the said

structures are capital goods in terms of Serial no. 5 of the Rule 57Q

of the Rules. He further submits that the Tribunal has grossly erred

in observing that Chapter 73 of Schedule to the Tariff Act, under

which the said Iron and Steel structures fall, has not been specified

in the table below Rule 57Q of the Rules. In this regard, he

contends that so long as the Iron and Steel Structures are used as

component or accessory of the eligible machines falling under

Serial No. 2 and 3, irrespective of its classification under the Tariff

6

Act, it would be treated as capital goods as covered by Serial No. 5

of the table below Rule 57Q. In support of this argument, the

learned counsel, placing reliance on the Circular dated 02.12.1996,

issued by Central Board of Excise and Customs [hereinafter

referred to as "the CBEC"], submits that the components, spares

and accessories to the eligible capital goods under Rule 57Q have

been specified as capital goods on the basis of their description,

instead of classification under the Tariff Act. He further submits

that the said Iron and Steel structures, once used for the installation

of various machineries, become part and parcel of the sugar

manufacturing plant and without the help of said structures, the

machineries cannot be installed and made functional. In other

words, the said structures are also in the nature of components to

the sugar manufacturing plant. He also submits, by placing reliance

on Section Note 5 to Section XVI of the Tariff Act, that the

expression `machine' has to be construed as plant and any

component of the machine, being part of the machine, will also

become part of the plant. He further submits that this Court in

Commissioner of Central Excise, Jaipur v. Rajasthan Spinning and

Weaving Mills Ltd., 2010 (255) E.L.T. 481 (SC) held that the steel

plates and M.S. Channels, used in the fabrication of chimney,

which is integral part of the diesel generating set, are capital goods

7

in terms of Serial No. 5 of the Table below Rule 57Q the Rules. In

other words, the individual items used for fabricating the

component of the eligible capital goods under Serial Nos. 2 and 3,

are qualified as capital goods in terms of Serial No. 5 of the Table

below Rule 57Q of the Rules. The learned counsel, citing the

decision of the Tribunal in Simbhaoli Sugar Mills Ltd. V.

Commissioner of Central, 2001 (135) E.L.T. 1239 (Tri.-Del),

submits that the said decision deals with exactly the same

Structural Items, under Chapter heading 73.08, which are in issue

before this Court and used for installation of Sugar Manufacturing

Plant. He further submits that on issue of whether the Iron and

Steel items fabricated at site for raising the structure to support the

sugar manufacturing plant are capital goods or not under Rule 57Q,

the Tribunal answered that items used for fabricating the structures,

which are in the nature of components or part of the machines, are

also capital goods in terms of Rule 57Q and allowed MODVAT

credit on the said items. He further submits that the Special Leave

Petition against this decision of Tribunal, preferred by the

Revenue, has been dismissed by this Court. Drawing strength from

the above decisions of this Court and the Tribunal, the learned

counsel submits that the assessee is better placed as the iron and

steel structures in issue form the integral and quintessential part of

8

the Sugar manufacturing Plant and the whole machinery is so

designed that without the said Iron and Steel structures, the sugar

plant cannot function. He further submits that when individual

items used for fabricating the structures in the nature of

components to support the machinery are treated as capital goods

in terms of Rule 57Q, then it will be against logic to say that

structures are not components of the machines. The learned

counsel submits, by referring to a circular dated 05.08.1997 issued

by the CBEC, that in case of a Wind Mill, the tower acting as a

structure to support the Wind Mill constitutes an essential

component of the Wind Mill. Therefore, the support tower can be

treated as capital goods and the assessee can claim exemption, if

provided. Drawing an analogy from the example of Wind Mill, the

learned counsel submits that the Iron and Steel structures are the

components or parts of the Sugar manufacturing plant and qualify

as capital goods in terms of Serial No. 5 of the Table below Rule

57Q of the Rules. Arguendo, the learned counsel submits that the

Iron and Steel structures are fabricated at the site of work for use in

the construction or erection of the various machineries, therefore,

can be classified under sub-heading 7308.50 under Chapter 73 of

the Schedule to the Tariff Act which attracts Nil rate of duty.

Alternatively, the learned counsel submits, by placing reliance on

9

the judgment of this Court in Commissioner of Central Excise v.

Wainganga Sahkari S. Karkhana Ltd., 2002 (142) ELT 12 (SC),

that no excise duty is payable on structural items fabricated at site

and used within the site.

5. Per contra, Shri. K. Swami, learned counsel for the Revenue,

supports the findings and conclusion reached by the Tribunal and

the department. He further submits that the Iron and Steel

structures which fall under Chapter Heading 73 of the Schedule to

the Tariff Act, is neither mentioned in the Notification nor in the

Table below Rule 57Q of the Rules. According to learned counsel,

the Exemption Notification only exempts the capital goods as

defined in Rule 57Q of the Rules. The learned counsel also argues

that by applying "user test" theory, the Iron and Steel structures

cannot be considered as components of the sugar manufacturing

plant. It is also submitted that the Notification requires to be

strictly construed and since the assessee does not fall within the

ambit of the Notification, it is not entitled for the benefit of the

Notification.

10 THE NOTIFICATION :

6. To resolve the controversy, we need to notice the relevant

Notification and Rule 57Q of the Rules. The relevant portion of

Notification No.67/95-CE dated 16.03.1995 is as under:-

"In exercise of the powers conferred by sub-

section (1) of Section 5A of the Central Excise Act,

1944... the Central Government being satisfied

that it is necessary in the public interest so to do

hereby exempts

(i) capital goods as defined in Rule 57Q of the

Central Excise Rules 1944 manufactured in a

factory and used within the factory of production;

(ii) ...

from the whole of the duty of excise leviable

thereon which is specified in the Schedule to the

Central Excise Tariff Act, 1985 (5 of 1986)."

THE RULES :

Rule 57Q of the Central Excise Rules, 1944 reads:-

"(1) All goods falling under heading Nos.82.02

to 82.11;

(2) All goods falling under Chapter 84 (other than

internal combustion engines falling under

heading No.84.07 and 84.08 and of a kind used

in motor vehicles, compressors falling under

heading No.84.14 and of a kind used in

refrigerating and air-conditioning appliances

and machinery, heading or sub-heading

Nos.84.15, 85.18, 8422.10, 8424.10, fire

extinguishers falling under sub-heading

No.8424.80, 8424.91, 8424.99, 84.29 to 84.37,

8440, 84.50, 8452, 84.69 to 84.73, 84.76,

11

84.78, expansion valves and solenoid valves

falling under sub-heading No.8481.10 of a kind

used for refrigerating and air-conditioning

appliances and machinery);

(3) All goods falling under Chapter 85 (other

than those falling under heading Nos.85.09 to

85.13, 85.16 to 85.31 and 85.40);

(4) All goods falling under heading Nos.90.11 to

90.13, 90.16, 90.17, 98.22 (other than for

medical use), 90.24 to 90.31 and 90.32 (other

than of a kind used for refrigeration and air-

conditioning appliances and machinery);

(5) Components, spares and accessories of the

goods specified against S. Nos.1 to 4 above."

ANALYSIS OF THIS MATERIAL :

7. The Tariff Act prescribes the rate of duty for each chapter

head and sub-head. The Tariff Act has authorized the Central

Govt. to modify the rates/duty by issuing notifications. Since

exemption notifications are issued under delegated legislative

power, they have full statutory force. The Notification No.67/95-

CE dated 16.03.1995 specifically exempts capital goods as defined

in Rule 57Q of the Rules. The other condition that is envisaged in

the Notification is that the `capital goods' should be manufactured

in a factory and used within the factory of production. If these

twin conditions are satisfied, the capital goods are exempt from

payment of excise duty. A party claiming exemption has to prove

12

that he/it is eligible for exemption contained in the notification. An

exemption notification has to be strictly construed. The conditions

for taking benefit under the notification are also to be strictly

interpreted. When the wordings of notification is clear, then the

plain language of the notification must be given effect to. By way

of an interpretation or construction, the Court cannot add or

substitute any word while construing the notification either to grant

or deny exemption. The Courts are also not expected to stretch the

words of notification or add or subtract words in order to grant or

deny the benefit of exemption notification. In Bombay Chemicals

(P) Ltd. vs. CCE - (1995) Supp (2) SCC 646, a three Judge Bench

of this Court held that an exemption notification should be

construed strictly, but once an article is found to satisfy the test by

which it falls in the notification, then it cannot be excluded from it

by construing such notification narrowly.

8. Now coming to Rule 57Q of the Rules, these rules are

framed under the Statute. While interpreting the Rules, which are

framed under the Statute, they should be read as a part of the

Statute itself and require to be interpreted as intra vires to the Act

under which they have been issued.

13 Having said that, now let us consider the submission of learned

counsel Shri Lakshmikumaran for the assessee who contends that

Iron and Steel structurals manufactured by the assessee within its

factory used for the purpose of installation of sugar manufacturing

plant are components of the capital goods and therefore, exempt

from payment of excise duty by virtue of Notification No.67/1995-

CE dated 16.03.1995. However, Shri Swami, learned counsel for

the Revenue contends that the items in dispute are independent

goods manufactured by the assessee, though in its factory from the

goods on which excise duty is paid cannot be construed as

component parts of sugar manufacturing plant and therefore, is not

entitled for the benefit of Notification No.67/1995 dated

16.03.1995.

9. As per Notification No.67/1995 dated 16.03.1995, capital

goods as defined in Rule 57Q of the Rules manufactured in a

factory and used within the factory of production are exempt from

payment of Excise Duty. Rule 57Q of the Rules, specifies various

items of goods falling under different chapter headings and sub-

headings of the Tariff Act as capital goods. It is not the case of the

assessee that Iron and Steel Structures manufactured by it in its

factory are the goods which fall under Items 1 to 4 of Rule 57Q,

14

though sugar manufacturing unit would fall under Item Nos. 2 and

3 of the Table to Rule 57Q of the Rules. It is the specific stand of

the assessee that the goods in dispute are components of the goods

specified in Items 2 and 3 of the Table to Rule 57Q of the Rules

and since the capital goods include components and accessories,

the Iron and Steel Structures manufactured within the factory are

exempt from excise duty.

10. The expression "components" is not defined under the Act.

Therefore, reference can be made to dictionaries to understand the

meaning of the expression "components". In Webster

Comprehensive dictionary, it is defined as `Constituent part'. In

Oxford Advanced Learner's Dictionary, Volume 1, International

Edition, the word "component" means a `constituent part'.

Further, `constituent' means `serving to form or compose as a

necessary part'. In Advanced Law Lexicon, 3rd Edition 2005, (by

P. Ramanatha Aiyar), the word `component part' is defined as

`something which becomes an integral part of the goods in

question by losing its physical and economic distinctiveness'. It

defines `constituent' (of a component) as `that helps make up or

complete a unit or a whole's one part of something that makes up a

whole'. Encyclopaedic Law Lexicon, Volume 2008-09 Edition, by

15

Justice C.K. Thakkar, describes the `components' as : `It appears,

therefore, that for an article to be called a component part, it is not

necessary that even it becomes part of another article, it should still

retain its identity. All that is necessary to make an article, a

component part is that it goes in to the composition of another

article. If an article is an element in the composition of another

article made out of it, such an article may well be described as a

component part of another article. It may be that the final product

made may be in the nature of a compound in which case, the

elements forming component parts may not be capable of any more

separate identification. Equally, it may be that when a machinery

is assembled out of several parts forming that machinery, those

machinery, those parts, even after there being filled may retain

their individuality or identity'.

11. The meaning of the expression `components' as defined in

the dictionary is accepted and adopted by this Court in the case of

Star Paper Mills Vs. Collector of Central Excise (1989) 4 SCC 724

and the same is quoted with approval in CCE Vs. Allied Aid

Conditioning Corporation 2006 (202) ELT 209 (SC).

12. In order to determine whether a particular article is a

component part of another article, the correct test would be to look

16

both at the article which is said to be component part and the

completed article and then come to a conclusion whether the first

article is a component part of the whole or not. One must first look

at the article itself and consider what its uses are and whether its

only use or its primary or ordinary use is as the component part of

another article. There cannot possibly be any serious dispute that

in common parlance, components are items or parts which are used

in the manufacture of the final product and without which, final

product cannot be conceived of.

13. The meaning of the expression `component' in common

parlance is that `component part of an article is an integral part

necessary to the constitution of the whole article and without it, the

article will not be complete'.

14. This Court, in Star Paper Mills (supra) has made a settled

distinction while considering whether paper cores are

`components' in the manufacture of paper rolls and manufacture of

paper sheets. It is stated that `paper cores' are component parts in

so far as manufacture of roll is concerned, but it is not `component

part' in the manufacture of sheets. It is useful to quote the

observations made by this Court :-

17 "... paper core would also be constituent part of

paper and would thus fall within the term

"component parts" used in the Notification in so

far as manufacture of paper in rolls is concerned.

Paper core, however, cannot be said to be used in

the manufacture of paper in sheets as component

part. We are conscious that the relevant tariff item

uses the word "paper" but since paper in rolls and

paper in sheets are nothing but different forms of

paper, both of them would be excisable goods as

paper under the relevant tariff item."

15. In Modi Rubber Ltd. v. Union of India, (1997) 7 SCC 13, the

appellant had set up tyre and tube manufacturing plant and

imported various plants and machineries. While using the plants

and machineries, PPLF (Polypropylene Liner Fabric) was used as a

device in the form of liner components to various machinery units

to protect the rubber-coated tyre fabric from atmospheric moisture

and dust. This Court held that the PPLF was not a component of

the machine itself. It was not a constituent part. It was used as a

Liner Fabric not only in tyre production but also in similar other

industrial processes.

16. In Hindustan Sanitaryware & Industries Ltd. & Lakshmi

Cement v. Collector of Customs, (2000) 10 SCC 224, this Court

while drawing a distinction between component and spare parts

observed:

18 "It pertains to the meaning of the phrase

"component parts". The Tribunal, in the

impugned order, drew a distinction between

component parts and spare parts, following its

earlier decision in the case of Vaz Forwarding

(P) Ltd. v. Collector of Customs1. Component

parts, according to it, were those which were

initially used in the assembly or manufacture

of a machine and spare parts were those parts

which were used for the subsequent

replacement therein of worn-out parts. The

decision in Vaz Forwarding (P) Ltd.1 and other

decisions of the Tribunal were considered by a

larger Bench of the Tribunal in Jindal Strips

Ltd. v. Collector of Customs2. The larger

Bench took the view that a spare part was a

replacement part to replace a damaged or

worn-out component but it was, nevertheless, a

component part. "Component" was the genus

and "spare" was a species thereof; it was a

component which was used for replacement.

The larger Bench judgment found that the

distinction drawn in Vaz Forwarding (P) Ltd.1

was a distinction without a difference.

2. The larger Bench decision followed

decisions of this Court, and we are of the view

that its view is correct. A spare part, though

fitted into a machine subsequent to its

manufacture, to replace a defective or worn-

out part becomes a component of the machine.

It is a component part."

17. The issue for our consideration, as we have already noticed,

is whether the Iron and Steel Structures are components of the

Capital Goods specified in the Table below Rule 57Q of the Rules.

This issue can be resolved by looking into the literature which

19

gives some glimpse how sugar is manufactured in a sugar industry

and what is the essential machinery for manufacture of sugar.

18. The process of making sugar commences from the stage of

collecting the harvest, cleansing and grinding, juicing, clarifying,

evaporation, crystallization, refining and lastly separation and

packing. For the purpose of manufacturing cane sugar in a sugar

industry, the essential machineries that are required are sugar

presses, diffusers, vaccum pans, evaporators and sugar handling

equipments, crystallizers, sugar grader, elevator and cooling tower.

We can call these machineries as essential items in a sugar

manufacturing plant. The assessee also fabricates Iron and Steel

Structures for installation of the aforementioned equipments. Even

according to learned senior counsel Sri Lakshmikumaran, these

Iron and Steel Structures are used for effective functioning of

Sugar Manufacturing Plant. Under the Notification, the Central

Government had exempted duty in respect of "capital goods", as

defined in Rule 57 Q of the Rules if they are utilized in a place

where such goods are manufactured and used within the factory of

production. The Notification specifically states that what is

exempted under the Notification are "capital goods" as defined in

Rule 57Q. Rule 57Q specifies five categories of items as capital

20

goods. It is not the case of the assessee or its learned counsel that

the exemption claimed was on Items 1 to 4 of the Table to Rule

57Q but as components which would fall under item No.5 of the

Table to Rule 57Q. Therefore, in order to get the benefit of non

excise duty on Iron and Steel Structures, it had to be established by

the assessee that Iron and Steel Structures are utilized as

component parts for the finished products, viz. vacuum pan,

crystallizers, sugar grader, elevator, cooling tower etc.

OUR ANALYSIS AND CONCLUSION :

19. It appears to us, in the light of the meaning of the expression

`component parts' that the iron and steel structures are not essential

requirements in the sugar manufacturing unit. Anything required

to make the goods a finished item can be described as component

parts. Iron and Steel structures would not go into the composition

of vacuum pans, crystallizers etc. If an article is an element in the

composition of another article made out of it, such an article may

be described as a component of another article. Thus, structures in

question do not satisfy description of `components'. Therefore, in

our opinion, the Tribunal was right in the view it took.

21 20. Sri V. Lakshmi Kumaran, learned senior counsel, submits

that the Iron and Steel structures are fabricated at the site of the

work for use in the construction of the various machineries and,

therefore, can be classified under sub-heading 7308.50 under

Chapter 73 of the Schedule to the Act, which attracts nil rate of

duty. Therefore, it is contended that even if his other contention is

not accepted, the assessee should not be fastened with any duty

liable under the Act. This issue was neither raised nor canvassed

by the assessee before the Tribunal. Therefore, we cannot permit

the learned counsel to argue this issue before us for the first time.

Therefore, this contention of the learned counsel is rejected.

21. Now coming to the last contention canvassed by the learned

counsel that the Tribunal is not correct in holding that the assessee

failed to establish that the steel structures are components of the

capital goods as specified in the Table below Rule 57Q of the

Rules and, therefore, are not eligible for exemption under the

notification. This issue requires to be answered with reference to

Circular No. 276/110/96-TRV dated 02.12.1996 issued by the

CBEC. The relevant portion of the Circular is as under :-

"3.The matter has been examined. With effect

from 23-7-1 996, capital goods eligible for credit

under Rule 57Q have been specified either by

22

their classification or by their description.

Clauses (a) to (c) of Explanation (1) of the said

rule cover capital goods by their classification

whereas clause (d) covers goods by their

description viz, components, spares and

accessories of the said capital goods. It may be

noted that there is a separate entry for

components, spares and accessories and no

reference has been made about their

classification. As such, scope of this entry is not

restricted only to the components, spares and

accessories falling under Chapters 82, 84, 85 or

90 but covers all components, spares and

accessories of the specified goods irrespective of

their classification. The same was the position

prior to amendment in Rule 57Q (i.e. prior to 23-

7-1996) when credit was available on

components, spares and accessories of the

specified capital goods irrespective of their

classification.

4. Accordingly, it is clarified that all parts,

components, accessories, which are to be used

with capital goods of clauses (a) to (c) of

Explanation (1) of Rule 57Q and classifiable

under any chapter heading are eligible for

availment of Modvat credit."

22. The period in dispute is July 1999 to September 1999. The

Circular is dated 02.12.1996. Therefore, it was applicable to the

disputed period. It is not disputed and it cannot be disputed that

the Circular provides that all parts, components, accessories, which

are to be used with the capital goods of Clauses (a) to (c) of

Explanation (1) of Rule 57Q and classifiable under any Chapter

heading are eligible for availing of MODVAT Credit. However,

23

while denying exemption under the notification, the Tribunal has

concluded that the goods in question, which comes under Chapter

Heading 73 of the Tariff Act has not been specified in the table

below rule 57Q. We do not find fault with the reasoning of the

Tribunal, since the Circular, on which reliance is now placed by the

learned counsel, was not produced before the Tribunal and,

therefore, going by the language employed in Rule 57Q, there is

justification for the Tribunal for coming to the aforesaid

conclusion. Since in view of the circular, which is now brought to

our notice, the Tribunal was not correct to reject the claim of the

assessee on the aforesaid ground. However, this finding of ours

will not assist the assessee, since we have held that Iron and Steel

structures are not the components of machineries used in the

installation of Sugar Manufacturing Plant.

23. Before we conclude, we must further observe that Shri

Lakshmikumaran drew our attention to the judgment of this Court

in CCE vs. Rajasthan Spinning and Weaving Mills Ltd. (2010) 255

ELT 481 (SC) where the appeal preferred by the Revenue is

dismissed. The facts in the said case were that the respondent-

assessee availed MODVAT credit on steel plates and M.S.

channels, as capital goods in terms of Serial No.5 of the Table

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given below Rule 57Q, used for erection of the chimney for the

diesel generating set. The parties were ad idem that diesel

generating set falls under chapter heading 85 which is mentioned at

Serial No.3 of the Table and also the chimney is an accessory in

terms of Serial No.5 of the Table given below 57Q. The issue

which was agitated before the Court was whether the Steel plates

and MS Channels used in the fabrication of chimney are capital

goods in terms of Serial No.5 of the Table below Rule 57Q. This

Court, whilst applying the user test, had held that the steel plates

and MS Channels used in the fabrication of chimney are capital

goods as contemplated by Rule 57Q as the chimney is not only an

accessory but also an integral part of the diesel generating set in the

light of the Pollution Control laws mandating that all plants

emitting effluents should be equipped with apparatus to reduce or

get rid of effluent gases. We are afraid that this decision would

assist the appellants in support of the contention canvassed. In this

instant case, the Court was considering whether steel plates and

M.S. Channels used in fabrication of chimney for diesel generating

sets are entitled to avail of MODVAT credit by treating them as

capital goods in terms of Rule 57Q of the Central Excise Rules.

This Court, applying `user test', has arrived at a conclusion that

Steel Plates and MS Channels are used in the fabrication of

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chimney which is an integral part of the diesel generating set.

Therefore, the test applied by this Court is whether the items that

were at issue were integral part of a machinery. If that test is

satisfied, there will not be any difficulty to hold a particular item

of the machinery is a component part and therefore, will fall within

the ambit of the expression `capital goods'.

24. In Simbhaoli Sugar Mills Ltd. v. Commissioner of Central

Excise, Meerut, 2001 (135) ELT 1239 (Tri-Del), the appellant is a

manufacturer of sugar and availed a MODVAT credit on the joints,

channels, angles and MS Beams used in fabricating supporting

structures for installation of equipments such as vacuum pan,

crystallizers, sugar grader, elevator, etc., HR plates (black steel) are

used in boiler of sugar plant to keep temperature high, MS bars,

shapes and sections are used for erection of new cooling tower,

chequred plates and ITR plates are used to construct the platforms,

the cane carrier chain and spares are used to transfer the raw

material/semi processed material from stage to other, as the capital

goods in the terms of Rule 57Q, treating these items as the parts

and components of the plant. The question which arose before the

Tribunal was that whether these items used for fabricating

structures to support and install various machineries of the sugar

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plant are capital goods in terms of the Rule 57Q. The Tribunal

while allowing the MODVAT credit found that these items, except

MS sections and shapes, used for raising structure to support the

various machines, parts of machineries of the plant would be

covered by the explanation to Rule 57Q as a capital goods. The

Tribunal referred to its own decision in Malavika Steel Limited's

case and without semblance of any discussion, has partly allowed

the assessee's appeal. In view of our findings and the conclusion in

the earlier part of the judgment, we cannot agree with the reasoning

of the Tribunal.

25. In the result, this appeal fails and, accordingly, dismissed.

Costs are made easy.

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

......J.

[ D. K. JAIN ]

...........................J.

[ H. L. DATTU ]

New Delhi,

August 02, 2011.

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