2006 (7) TMI 226 - HC - Central Excise

Summary

Issues Involved:
1. Whether the electrical transformer qualifies as "capital goods" under Rule 57Q of the Central Excise Rules, 1944.
2. The condonation of delay in filing the petition by the revenue.
3. The conduct and procedural inefficiencies of the revenue department in handling the case.

Issue-wise Detailed Analysis:

1. Qualification of Electrical Transformer as "Capital Goods" under Rule 57Q:
The primary issue was whether the electrical transformer used by the assessee qualifies as "capital goods" under Rule 57Q of the Central Excise Rules, 1944. The assessee had availed Modvat credit of Rs. 26,100/- for the purchase of electrical transformers, which was contested by the adjudicating authority, leading to a show cause notice. The Assistant Commissioner disallowed the Modvat credit, but this decision was overturned by the Commissioner of Central Excise (Appeals), who relied on a previous Tribunal judgment (CCE, Meerut v. Nav Bharat Paper Mills, 1996). The Tribunal upheld this decision, prompting the revenue to seek a reference from the High Court.

The High Court examined Rule 57Q, which defines "capital goods" broadly to include machines, machinery, plant, equipment, apparatus, tools, or appliances used for producing or processing any goods or bringing about any change in any substance for the manufacture of final products. The Court noted that the definition is "quite wide and liberal."

The Court referred to the Supreme Court judgment in Commissioner of Central Excise, Coimbatore v. Jawahar Mills Ltd., which held that the definition of "capital goods" is very wide and includes any goods used for producing or processing any goods or bringing about any change in any substance for the manufacture of final products. The Court also cited a Division Bench judgment in C.I.T. v. Saraswati Industrial Syndicate Ltd., which held that a generating set is part of the plant and machinery.

The Court concluded that the electrical transformer used by the assessee is part of the plant and machinery necessary for manufacturing activities, thus qualifying as "capital goods" under Rule 57Q. Therefore, the Tribunal was correct in allowing Modvat credit for the electrical transformers.

2. Condonation of Delay:
The petition by the revenue was delayed by 69 days. However, the Court chose to address the merits of the case first and found no merit in the revenue's arguments. Consequently, the Court did not find it necessary to deal with the application for condonation of delay.

3. Conduct and Procedural Inefficiencies of the Revenue Department:
The Court expressed strong displeasure regarding the manner in which the revenue department handled the case, especially considering the small amount involved (Rs. 26,100/-). The Court highlighted the excessive expenditure of resources and man-hours by the revenue department in pursuing the case, which was already covered against them.

The Court detailed the procedural steps taken by the revenue department, noting significant delays and inefficiencies at various stages, including obtaining approvals, transferring records, and re-filing the petition after objections were raised by the High Court registry. The Court directed that a copy of the order be sent to the Chairman, Central Board of Excise and Customs, New Delhi, to ensure appropriate remedial measures are taken to address these inefficiencies.

Conclusion:
The High Court dismissed the petition, affirming that electrical transformers qualify as "capital goods" under Rule 57Q, and criticized the revenue department for its inefficient handling of the case. The Court did not address the condonation of delay due to the lack of merit in the revenue's arguments.