2005 (10) TMI 203 - AT - Central Excise

Issues Involved:
1. Admissibility of Modvat credit on capital goods.
2. Classification of specific goods as capital goods under Rule 57Q.
3. Eligibility of Single Point Mooring (SPM) system and its components for Modvat credit.

Detailed Analysis:

1. Admissibility of Modvat Credit on Capital Goods:
The appeals arise from the orders of the Commissioner (Appeals) Central Excise regarding the admissibility of Modvat credit on capital goods. The Tribunal noted that much case law has developed since the impugned order was passed, clarifying the scope of Rule 57Q under the erstwhile Central Excise Rules and the types of goods covered under the definition of capital goods.

2. Classification of Specific Goods as Capital Goods:
The Tribunal reviewed various decisions to determine whether the goods in question qualify as capital goods. The Supreme Court in Jawahar Mills Ltd. held that the language used in Explanation (1) of Rule 57Q is very liberal. If any items enumerated in Explanation 1(a) and 1(b) are used for any purpose mentioned therein for the manufacture of final products, they satisfy the test of capital goods. Goods specified in Explanation 1(c) need not be used in the manufacture of the final product but should be used in the factory of production. The Tribunal further referenced decisions in Reliance Industries Ltd., Pennar Aluminium Co. Ltd., Sirpur Mills, Simbhaoli Sugar Mills Ltd., New J.K Cement Works, and Adarsh Industries, which held that the benefit of capital goods cannot be denied on the ground that a particular item is not directly contributing towards the production of goods. Examples include nuts and bolts used in machinery.

Applying the ratio of these decisions, the Tribunal allowed appeals E/589, 591, and 592 in full on the items mentioned in the list attached to the order.

3. Eligibility of Single Point Mooring (SPM) System and Its Components for Modvat Credit:
In appeal E/590, the appellants claimed Modvat credit on a Single Point Mooring (SPM) and its attachments. The appellants argued that the SPM system is integrally connected with equipment and tanks within the factory through pipelines and instrumentation, making it essential for the refinery's operation. They contended that the SPM system is used for carrying raw materials to the tanks located within the factory, qualifying it as material handling equipment covered by the definition of capital goods under Explanation 1(a) to Rule 57Q. The appellants cited the Supreme Court's decision in M/s. Birla Corporation Ltd. v. CCE, which held that ropeways used for transporting raw material from mines to factory premises are eligible for Modvat credit.

The Tribunal considered these submissions and noted that the issue before the Supreme Court in Birla Corporation Ltd. was whether duty paid on spares of rope-ways used for transporting crushed limestone from mines to the factory was entitled to Modvat credit. The Supreme Court allowed the appeal, following its earlier decision in J.K. Udaipur Udyog, which held that Modvat credit as capital goods is admissible on pipelines outside the factory as an extension of pipelines within the factory.

However, the Tribunal distinguished the present case, noting that the SPM has an independent and distinct function and cannot be considered an extension of the machinery situated in the factory. The Supreme Court in another decision rejected the plea that a mining area is an extension of a factory manufacturing cement, stating that a mine situated at a distance where raw material is extracted cannot be considered a factory. Similarly, an SPM where liquid cargo is discharged from a tanker cannot be called an extension of a factory. Therefore, the SPM does not qualify as capital goods within the meaning of Rule 57Q. Consequently, items that are parts of the SPM, such as anchor piles, anchor chain stoppers, offshore bands, half shell bracket, anode pipes, NPS, offshore line pipe, and ERW steel pipes, are also not eligible for credit under Rule 57Q.

Conclusion:
- Appeals E/589, 591, and 592 are fully allowed.
- In appeal E/590, except for items listed at Sl. No. 40 and 41 in the annexure, which are not eligible for Modvat credit, the rest of the items in dispute are eligible for Modvat credit as capital goods. Thus, appeal E/590 is partly allowed to the extent indicated above.

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