2000 (3) TMI 823 - AT - Central Excise

Summary

Issues:
Whether air-conditioners used in a pharmaceutical industry for maintaining a proper environment where pharmaceutical products are manufactured qualify as capital goods under Rule 57Q.

Analysis:
The main issue in this case was whether air-conditioners used in a pharmaceutical industry to maintain a proper environment where pharmaceutical products are manufactured would qualify as capital goods under Rule 57Q. The Revenue contended that these air-conditioners do not directly participate in the manufacturing process, while the respondent argued that they are essential for maintaining a sanitized environment as required by the Drugs Control Order to ensure the quality of the final product.

The Revenue's representative argued that previous case law had held that humidifiers, which control the environment but do not directly participate in manufacturing, were not eligible for Modvat credit under Rule 57Q. Therefore, the representative contended that air-conditioners, being similar items that control the environment, should also not qualify for Modvat credit.

On the other hand, the respondent's advocate referred to a decision by the Larger Bench of the Tribunal in the case of Jawahar Mills, which stated that environmental control equipment, including humidifiers, used in the manufacturing plant where final products are made, should be considered capital goods. Additionally, the advocate cited a previous decision in the case of Aksh India Ltd. v. C.C.E., which allowed air-conditioners as eligible capital goods before a certain date, applicable to the dispute year of 1995.

After considering the arguments and records, the judge found that the air-conditioners were not used in office premises but specifically in the plant where pharmaceuticals were manufactured to control the environment as required by the Drugs Control Order. The judge noted that the control over the environment directly impacted the quality of the final products. Referring to the decisions in Jawahar Mills and Aksh India, the judge concluded that the use of air-conditioners in this case fell within the principles established in those cases. Therefore, the judge rejected the Revenue's appeal, stating that the matter had been settled by previous decisions, and there was no reason to interfere with the Order-in-Appeal.

In conclusion, the judgment upheld the eligibility of air-conditioners used in a pharmaceutical industry for maintaining a proper environment as capital goods under Rule 57Q, based on the necessity of controlling the environment to ensure the quality of the final pharmaceutical products manufactured.