1997 (1) TMI 383 - Commissioner - Central Excise

Summary

Issues: Disallowance of capital goods credit for air conditioners; Eligibility of air conditioners as capital goods under Rule 57Q; Consideration of essentiality of air conditioners for manufacturing final products; Applicability of Drugs and Cosmetic Rules, 1945; Interpretation of "in or in relation to" in Rule 57Q; Relevance of harmonious reading of Rules 57Q and 57S; Precedents supporting eligibility of air conditioners as capital goods.

In the judgment delivered by Commissioner of Customs & Central Excise (Appeals), the issue revolved around the disallowance of capital goods credit for air conditioners by the Assistant Commissioners in the adjudication orders, prompting different appellants to file appeals against these decisions. The main contention of the appellants was that the air conditioners were essential for the manufacturing process of their final products. The Commissioner combined the appeals due to the similarity of the issue at hand.

Upon careful consideration of the facts and impugned orders, the Commissioner examined the essentiality of air conditioners for the manufacture of final products in appeal numbers 30 and 31/96. The appellants provided evidence, including extracts from the Drugs and Cosmetic Rules, 1945, to support their claim. The primary issue was whether the Assistant Commissioners' rejection of capital goods credit for air conditioners could be legally sustained.

The Commissioner referred to Rule 57Q, which defines capital goods as machinery, tools, or appliances used in the production or processing of goods. The rule also includes spare parts, components, and accessories. The interpretation of the phrase "in or in relation to" in Rule 57Q was crucial, and a harmonious reading of Rules 57Q and 57S was deemed necessary. Citing a precedent set by the South Regional Bench, CEGAT, the Commissioner emphasized the importance of considering the relationship between capital goods and the manufacturing process.

In the specific appeals discussed, the Assistant Commissioners had rejected air conditioners as capital goods, leading to the denial of Modvat credits. However, the Commissioner found merit in the appellants' arguments. For instance, in appeals 30/96 and 31/96, the appellants, who manufactured medicaments, demonstrated that air conditioners were vital for maintaining a sterile atmosphere as mandated by the Drugs and Cosmetic Rules, 1945. The schedule under the rules explicitly mentioned the necessity of air conditioning for specific manufacturing processes, supporting the eligibility of air conditioners as capital goods.

Similarly, other appellants involved in the manufacturing of medicines and computer peripherals presented arguments highlighting the essential role of air conditioners in their production processes. They relied on case laws, including a Supreme Court decision, to support their claims. The Commissioner concluded that the air conditioners were integral to the manufacturing processes and, therefore, eligible for capital goods credit.

Consequently, the Assistant Commissioners' orders disallowing capital goods credit for air conditioners were set aside, and all five appeals were allowed. Penalties imposed in certain appeals were also vacated due to the extension of credit to the appellants.