2005 (12) TMI 104 - HC - Central Excise

Issues Involved:
1. Eligibility for Modvat credit on capital goods used in the precincts of the factory.
2. Definition of 'factory' under Section 2(e) of the Central Excise Act, 1944.
3. Inclusion of mining area under the factory premises.
4. Tribunal's reliance on Supreme Court judgments.
5. Use of capital goods in captive mines.
6. Integral process of mining limestone for cement manufacture.
7. Interpretation of Supreme Court's decision in Jaypee Rewa Cement's case.
8. Tribunal's adherence to its earlier judgments.
9. Site plan considerations for factory definition.
10. Excisability of crushed limestone.

Detailed Analysis:

1. Eligibility for Modvat Credit on Capital Goods:
The primary issue was whether capital goods like crushers and conveyor belts used for transporting crushed limestone from mines to the factory are eligible for Modvat credit under Rule 57Q of the Central Excise Rules, 1944. The Tribunal had denied the credit, but the High Court found substantial questions of law regarding the interpretation of Rule 57Q and eligibility of such equipment for Modvat credit.

2. Definition of 'Factory' Under Section 2(e):
The court examined whether the area where the crusher and conveyor belt are installed can be called a factory within the meaning of Section 2(e) of the Central Excise Act, 1944. The assessee argued that the land is part of the factory as it is connected and used for manufacturing the final product.

3. Inclusion of Mining Area Under Factory Premises:
The court considered if the mining area and the area covered under the crusher and conveyor belt fall within the premises/precincts of the factory as defined in Section 2(e). The assessee contended that these areas are integral to the manufacturing process and should be considered part of the factory.

4. Tribunal's Reliance on Supreme Court Judgments:
The Tribunal had relied on the Supreme Court's decision in Jaypee Rewa Cement's case to deny Modvat credit. However, the High Court noted that the Supreme Court in Birla Corporation Ltd.'s case had allowed Modvat credit for similar circumstances, thus creating a precedent that should be followed.

5. Use of Capital Goods in Captive Mines:
The issue was whether the use of capital goods in captive mines for obtaining limestone, an intermediate product, which is then used for manufacturing cement, can be considered a process in the manufacture of final goods. The High Court referred to the Supreme Court's decision in Birla Corporation Ltd., which allowed Modvat credit for such use.

6. Integral Process of Mining Limestone:
The court examined whether mining limestone in captive mines is integral to the process of manufacturing cement, especially since the mining area is adjacent to the cement factory. The Supreme Court in Birla Corporation Ltd.'s case had recognized the integral nature of this process.

7. Interpretation of Supreme Court's Decision in Jaypee Rewa Cement's Case:
The High Court noted that the Supreme Court's decision in Jaypee Rewa Cement's case did not directly address the eligibility of Modvat credit for the goods in question. The case primarily dealt with the eligibility of materials used in the manufacture of intermediate goods.

8. Tribunal's Adherence to Its Earlier Judgments:
The High Court found that the Tribunal should have followed its earlier judgments, such as the one in Pepsico India Holdings Ltd., which allowed Modvat credit for capital goods used outside the factory premises but connected to the manufacturing process.

9. Site Plan Considerations for Factory Definition:
The court considered the site plan of the factory area, including the mining area, crusher, and conveyor belt, and concluded that these areas should be considered part of the factory as defined in Section 2(e).

10. Excisability of Crushed Limestone:
The court addressed whether crushed limestone is an excisable commodity and thus whether the place where it is manufactured (i.e., the crusher in the mining area) is considered a factory area. The High Court concluded that the area should be considered part of the factory.

Conclusion:
The High Court held that the Tribunal erred in denying Modvat credit for the crusher and conveyor belt used for transporting crushed limestone to the factory. The court ruled in favor of the assessee, allowing the Modvat credit and directing that any recovered amounts be refunded. The reference was answered in favor of the assessee, and the writ petition was allowed.

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