2009 (2) TMI 101 - AT - Central Excise

Availability of the input credit in respect of the plastic crates either as capital goods or as input Plastic crates which is used in handling of material inside the factory for internal transportation of goods, acts a accessory as they help in increasing effectiveness of machinery so credit is admissible as Capital goods Proper storage of inputs is essential for efficient manufacturing process and in absence of proper facilities for storage and transportation; the same will affect the manufacturing process therefore, crates used for transportation of finished goods in to bonded store room, are eligible for credit as input

Summary

Issues Involved:
1. Availability of input credit for plastic crates as capital goods.
2. Availability of input credit for plastic crates as inputs.

Detailed Analysis:

1. Availability of Input Credit for Plastic Crates as Capital Goods
The primary issue was whether plastic crates used for internal transportation within the factory premises qualify for modvat credit as capital goods under Rule 2(b) of the Cenvat Credit Rules, 2002. The definition of capital goods includes goods falling under specified chapters and headings, pollution control equipment, and accessories of the specified goods.

Definition and Interpretation of "Accessory":
- The term "accessory" is interpreted based on various judicial precedents. According to Webster's Third New International Dictionary, an accessory is "an object or device that is not essential in itself but that adds to the beauty, convenience, or effectiveness of something else."
- The Hon'ble Supreme Court's decisions in cases like M/s. Annapurna Carbon Industries Co. and M/s. Mehra Brothers provided significant insights. The Court held that accessories are supplementary or secondary to the primary equipment and contribute to its convenience or effectiveness.

Judicial Precedents:
- In M/s. Pragati Silicons Pvt. Ltd. v. CCE Delhi, the Supreme Court reiterated that an accessory is supplementary and not essential for the primary equipment's functioning but adds to its effectiveness.
- The Tribunal's decision in M/s. Manipal Academy of Higher Education v. CC, Chennai, and other cases like M/s. Kellogg India Ltd. v. CCE, Mumbai-VIII, supported the view that material handling equipment like plastic crates qualify as accessories.

Conclusion:
Based on the interpretation of "accessory" and judicial precedents, the plastic crates, used for transporting raw materials and finished goods within the factory, were held to be accessories to the main machinery. Thus, they qualify as capital goods under Rule 2(b) of the Cenvat Credit Rules, 2002, and are eligible for modvat credit.

2. Availability of Input Credit for Plastic Crates as Inputs
The alternative claim was whether plastic crates qualify for input credit under Rule 2(g) of the Cenvat Credit Rules, 2002. The definition of inputs includes all goods used in or in relation to the manufacture of final products, directly or indirectly.

Judicial Precedents:
- The Supreme Court in Collr. of C.E. v. M/s. Rajasthan State Chemical Works held that the expression "in the manufacture of the goods" encompasses all processes directly related to production, including handling and transportation of raw materials.
- In Collr. of C.E. v. M/s. Solaris Chemtech Ltd., the Court emphasized a broad interpretation of "in or in relation to manufacture."
- The Tribunal's decision in M/s. Union Carbide India Ltd. v. CCE and other cases like CCE Bangalore v. M/s. Anglo French Drugs & Indus. Ltd. supported the view that equipment used for collecting, transporting, or dispensing materials are considered inputs.

Conclusion:
Applying the broad interpretation of "in relation to manufacture," the plastic crates used for transporting and storing raw materials and finished goods within the factory are integral to the manufacturing process. Therefore, they qualify as inputs under Rule 2(g) of the Cenvat Credit Rules, 2002, and are eligible for modvat credit.

Final Decision:
The Larger Bench concluded that modvat credit is available on the plastic crates used as material handling equipment in the factory premises both as capital goods and as inputs. Appeals were returned to the original Bench for disposal.