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2015 (5) TMI 569 - HC - Central ExciseDisallowance of CENVAT Credit - Capital Goods - Welding electrodes - Whether welding electrodes can be treated to be capital goods under Rule 57Q for the purpose of allowing MODVAT/CENVAT Credit thereon to the appellant assessee during the period of August 1999 to September, 1999 - Held that - The scheme was introduced by inserting Chapter AA containing Rules 57A to 57J. Initially MODVAT scheme was introduced with a view to avail credit on duty paid on exisable goods used as input in manufacture of final products. From 1st March, 1987, similar scheme for allowing credit of money in respect of certain raw materials used in manufacture of certain exisable goods was introduced and Chapter AAA having Rules 57K to 57P was inserted. Scheme was further enlarged by inserting Chapter AAAA with Rules 57Q to 57U w.e.f. 01.03.1994 so as to permit availment of credit on duty paid on capital goods which are used in manufacturing process. - credit admissible on capital goods and therefore, we are confining ourselves with the relevant provisions contained in Rule 57Q to 57U, as stood in 1999. As per own admission of appellant, these Electrodes are used for welding of machines and machine parts which form part of repair work. If there is no damage in machine or no welding is required, Welding Electrodes would not be used at all. Meaning thereby, it fails the test of being a constituent of machine etc. or the manufacturing process of finished goods. It thus cannot be said that Welding Electrodes form constituent of plant and machinery. One user mentioned is hardening of surface of mill rollers, trash plates, scrappers so that smooth crushing of cane can be carried out. Meaning thereby, that though machines are otherwise workable for the purpose of manufacture of sugar, for smooth functioning, Welding Electrodes are used to form a layer over the surface of mill rollers etc. to harden it. It does not mean that without user of Electrodes , the machines are unworkable. Welding Electrodes do not constitute an integral part necessary to the constitution of whole article and without which, article would not be complete, as observed by Apex Court in paragraph no. 13 of the judgment in Saraswati Sugar Mills (2011 (8) TMI 4 - SUPREME COURT OF INDIA ). Consequently, we are of the view that present matter is squarely covered by what has been said by the Court in Saraswati Sugar Mills (Supra) and applying observation and test laid down therein it cannot be said that Welding Electrodes satisfy the requirement so as to constitute component of items mentioned in column nos. 1 to 4 of table in Rule 57Q(1) of Rules, 1944. - Decided against assessee.
Issues Involved:
1. Whether 'welding electrodes' can be treated as 'capital goods' under Rule 57Q for the purpose of allowing MODVAT/CENVAT Credit during the period of August 1999 to September 1999. Issue-Wise Detailed Analysis: 1. Whether 'welding electrodes' can be treated as 'capital goods' under Rule 57Q for the purpose of allowing MODVAT/CENVAT Credit during the period of August 1999 to September 1999: The appellant, a public limited company engaged in the manufacture of sugar, claimed MODVAT/CENVAT Credit on 'welding electrodes' as 'capital goods' during the period of August 1999 to September 1999. The Superintendent of Central Excise issued a show cause notice stating that these items were not included as 'capital goods' in the table appended to Rule 57Q of the Central Excise Rules, 1944. The appellant's explanation was rejected by the Deputy Commissioner, and subsequent appeals to the Commissioner of Central Excise (Appeals) and the Customs Excise and Service Tax Appellate Tribunal (CESTAT) were also dismissed. The primary question before the Court was whether 'welding electrodes' could be classified as 'capital goods' under Rule 57Q. The appellant argued that 'welding electrodes' are components of machinery used in the manufacturing process of sugar and therefore qualify for MODVAT credit. The respondent countered that 'welding electrodes' neither constitute a 'component' nor are included in any items mentioned in the table under Rule 57Q(1). The Court examined the provisions and authorities applicable to the subject. The MODVAT scheme, introduced in 1986, allowed credit on duty paid on excisable goods used as 'inputs' in the manufacture of final products. The scheme was extended to 'capital goods' with the introduction of Chapter AAAA containing Rules 57Q to 57U in 1994. The relevant Rule 57Q, as amended in February 1999, specified goods eligible for credit as 'capital goods'. The Court noted that 'welding electrodes' fell under heading No. 83.11, which was not specified in Rule 57Q as eligible for credit. The appellant's argument that 'welding electrodes' should be considered as 'components' was rejected. The Court referred to the definitions and judicial interpretations of 'components' and concluded that 'welding electrodes' do not qualify as 'components' necessary for the constitution of the whole machinery. They are used for repair and maintenance rather than being integral parts of the machinery or the manufacturing process. The Court also considered various judgments cited by the appellant, including decisions of the Supreme Court and Tribunals, but found them inapplicable to the present case. The Court emphasized that 'welding electrodes' do not satisfy the requirement to be classified as 'capital goods' under Rule 57Q and therefore, the appellant was not entitled to MODVAT/CENVAT Credit for 'welding electrodes'. Conclusion: The Court concluded that 'welding electrodes' cannot be treated as 'capital goods' under Rule 57Q for the purpose of allowing MODVAT/CENVAT Credit during the period of August 1999 to September 1999. The appeal was dismissed, and the question was answered in favor of the revenue and against the assessee.
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