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2017 (8) TMI 1001 - HC - Central ExciseCENVAT / MODVAT credit - capital goods - Single Point Mooring system - Rule 57Q of the Central Excise Rules, 1944 - Held that - It is an undisputed fact that part of the pipelines and SPM are integrally connected with the equipments and tanks within the factory through the pipelines and instrumentation. It is necessary to run the refinery of the size in question without installation of SPM used in connection with the import of crude by giant crude tankers. SPM and all connected and related items capital goods used & usable. The Appellants, in the present case, is not claiming that items used in making those SPM system to manufacture it. The scheme is that SPM system and its integrated part which is on going mechanism supported by the spares and accessories. Therefore, the Supreme Court judgment in Saraswati Sugar Mills vs. Commissioner of Central Excise, Delhi III 2011 (8) TMI 4 - SUPREME COURT OF INDIA , cannot be extended to deny the claim of the Appellants. The case of M/s. Bharati Airtel Limited is also not applicable in the facts and circumstances of the case, as in the present case actual SPM system is in use and required to be used for specific purpose. This is keeping in mind, the nature of business and final product produced/processed after obtaining this raw material through SPM system. In Vikram Cements vs. CCE, 2006 (1) TMI 130 - SUPREME COURT OF INDIA , the Supreme Court has specifically held that explosives in the mines are used for manufacture of final products and hence modvat credit cannot be denied even though not used in the factory. The impugned order, therefore, based upon the overruled judgment required to be set aside on this ground also as this case goes to the root of reasoning given by the learned Authority while rejecting the claim of the Appellant. We are inclined to observe that the expression used in the manufacture of goods take within its ambit in integral process and equipments connected with its ultimate production of goods. The material, equipments, in question are integral part of the manufacturing process and hence falls within the ambit of capital goods . Merely because SPM system is not specifically within the factory, but it is outside the factory, still required to be treated as capital goods used for manufacturing of final products, in the facts and circumstances of the case. Appeal allowed - decided in favor of appellant.
Issues Involved:
1. Eligibility of Modvat credit on Single Point Mooring (SPM) system under Rule 57Q of the Central Excise Rules, 1944. 2. Interpretation of "capital goods" and their usage in the manufacturing process. 3. Application of relevant legal precedents and judgments. Detailed Analysis: 1. Eligibility of Modvat credit on Single Point Mooring (SPM) system under Rule 57Q of the Central Excise Rules, 1944: The appellants, engaged in the manufacture of various chemicals and fibers, imported a Single Point Mooring (SPM) system and claimed Modvat credit under Rule 57Q. The Department issued a show cause notice proposing to disallow the credit, leading to a series of appeals. Ultimately, the appellants contended that the SPM system, used to transport raw materials like Naphtha and Paraxylene from ships to their tank farm, qualifies as "capital goods." 2. Interpretation of "capital goods" and their usage in the manufacturing process: The term "capital goods" under Rule 57Q includes machinery, equipment, and their components used in the manufacturing process. The appellants argued that the SPM system, although located outside the factory, is integrally connected to the manufacturing process by facilitating the transport of essential raw materials. The court considered various precedents, noting that the definition of "capital goods" encompasses items that are directly or indirectly involved in the production process. 3. Application of relevant legal precedents and judgments: The court reviewed several key judgments to interpret the scope of "capital goods": - Indian Copper Corporation Ltd. vs. Commissioner of Commercial Tax: Motor vehicles used in mining operations were considered as used in the manufacture of the final product. - J.K. Cotton & Spinning vs. STO: Items necessary for the manufacturing process, even if not directly involved in production, qualify as "capital goods." - Jawahar Mills Ltd. vs. CCE: Wires, cables, and control panels necessary for manufacturing qualify as "capital goods." - Jayaswal Neco Ltd. vs. CCE: Railway tracks used within a plant for transporting materials were deemed integral to the manufacturing process. - Vikram Cement vs. CCE: Explosives used in mines for manufacturing final products were considered for Modvat credit. The court concluded that the SPM system, being an integral part of the raw material transport mechanism, qualifies as "capital goods" under Rule 57Q. The system's role in transporting raw materials directly to the factory's tanks is essential for the manufacturing process, making it eligible for Modvat credit. Conclusion: The court held that the SPM system, despite being located outside the factory, is an integral part of the manufacturing process and qualifies as "capital goods" under Rule 57Q. The appeal was allowed, and the appellants were entitled to the Modvat credit claimed. The court emphasized that the definition of "capital goods" includes items that are integral to the production process, even if not directly involved in manufacturing within the factory premises. Order: (i) The question of law was answered in favor of the appellants and against the respondents. (ii) The appeal was allowed. (iii) No order as to costs.
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