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2015 (4) TMI 569 - SC - Central ExciseMODVAT / Cenvat Credit - Capital goods - railway track material used for handling raw materials, processed goods - goods in connection with manufacture of or in relation to manufacture - Held that - It follows from the bare reading of the Rule 57Q that for the purpose of allowing credit on specified duty paid on the capital goods, such capital goods are to be used by the manufacturer in his factory and are to be utilised for the purpose of manufacturing of final product. The explanation gives the meaning of capital goods . As per clause (a) thereof, machines, machinery, plants, equipment, apparatus, tools or appliances which are used for producing or processing goods or in bringing about any change in any substance for the manufacture of final product are to be treated as capital goods - It is clear from the reading of the definition of capital goods that when machines, machinery, plants, equipment, etc., are used for producing or processing any good or bringing about any change in any substance for the manufacture of final product, it would qualify as capital goods and MODVAT credit thereon would be permissible. In the process, the court also explained that there is no warrant for limiting the meaning of the expression in the manufacture of goods to the process of production of goods only. In the opinion of the court, the expression in the manufacture takes within its compass, all processes which are directly related to the actual production. It noted that goods intended as equipment for use in the manufacture of goods for sale are expressly made admissible for specification. The court further marked that drawing and photographic materials falling within the description of goods intended for use as equipment in the process of designing which is directly related to the actual production of goods and without which commercial production would be inexpedient must be regarded as goods intended for use in the manufacture of goods . Order of the Commissioner that in spite of taking note of the aforesaid use of the railway tracks and accepting the same as correct, the Commissioner denied the relief to the appellant on an extraneous ground, i.e., railway tracks were used for other purposes as well, namely, apart from conveying hot metal and hot pigs, it was used for carrying raw materials and finished goods as well. This can hardly be a ground to deny the relief inasmuch as by incidental use of the railway tracks for some other innocuous purpose, it does not lose the character of being an integral part of the manufacturing process. The Commissioner has further observed in his order that the railway track is not utilised directly or indirectly for producing or processing of goods or bringing about any change for manufacture of final product. This conclusion, obviously, is completely erroneous and amounts to misreading of the process. Test laid down by this court in M/s. J. K. Cotton Spinning & Weaving Mills Co. Ltd. s 1964 (10) TMI 2 - SUPREME COURT OF INDIA . It is clear that the railway tracks are installed not only within the plant, but the main objective and purpose for which the capital expenditure on laying these railway tracks is incurred by the appellant is for transporting hot metal in ladle placed on ladle car from blast furnace to pig casting machine through ladle car where hot metal is poured into pig casting machine for manufacture of pig iron. It is clear from the above that the use of railway tracks inside the plant not only form the process of manufacturing, but it is inseparable and integral part of the said process inasmuch as without the activity for which railway tracks are used, there cannot be manufacturing of pig iron. - CEGAT has not even adverted to and examined the issue from the aforesaid angle, which was the only method for arriving at a finding as to whether the railway tracks installed within the plant would come within the definition of capital goods under Rule 57Q of the Rules or not. The order of the CEGAT is stoically silent. It has affirmed the order of the Commissioner by simply observing that the Commissioner has arrived at the conclusion that these goods are not being used directly or indirectly for producing or processing the goods or for bringing about any change for the manufacture of the final product. - we set aside the order of the Commissioner as well as of CEGAT insofar as it pertains to item railway track material used for handling raw materials, process goods and hold that the appellant has rightfully claimed for MODVAT credit in respect of this item which credit is wrongly reversed by the authorities below - Decided in favour of assessee.
Issues Involved:
1. Denial of MODVAT credit on certain capital goods under Rule 57Q of the Central Excise Rules, 1944. 2. Classification of railway track material as "capital goods" under Rule 57Q. Issue-Wise Detailed Analysis: 1. Denial of MODVAT Credit on Certain Capital Goods: The appeal arises from the judgment of the Customs, Excise and Gold (Control) Appellate Tribunal (CEGAT), which confirmed the Commissioner's order denying MODVAT credit on specific items listed in the show cause notices under Rule 57Q of the Central Excise Rules, 1944. The items in question were: - Pipes and fittings used outside the plant for bringing water from the river Kharoon. - Railway track material used for handling raw materials and processed goods. - HDPE Tarpaulin used to avoid leakage of water from the water reservoir. - Loudspeakers used to pass instructions to operate various equipment due to distance. The Commissioner concluded that these items did not qualify as "capital goods" under Rule 57Q. The appellant contested this decision, particularly focusing on the railway track material. 2. Classification of Railway Track Material as "Capital Goods": The primary issue in the appeal was whether the railway track material used for handling raw materials and processed goods could be classified as "capital goods" under Rule 57Q. The relevant provision of Rule 57Q defines "capital goods" as: - Machines, machinery, plant, equipment, apparatus, tools, or appliances used for producing or processing any goods or for bringing about any change in any substance for the manufacture of final products. - Components, spare parts, and accessories of the aforementioned items. - Moulds and dies, generating sets, and weigh bridges used in the factory. The court referenced the precedent set in M/s. J. K. Cotton Spinning & Weaving Mills Co. Ltd. v. Sales Tax Officer, Kanpur, which established that if a process is integrally connected with the production of goods, making the manufacturing process commercially inexpedient without it, the goods used in such a process qualify as being used "in the manufacture of goods." Applying this test, the court examined the use of railway tracks in the appellant's plant. The railway tracks were used to transport hot metal from the blast furnace to the pig casting machine and to handle raw materials at the wagon tippler. This use was deemed integral to the manufacturing process of pig iron, making the railway tracks an inseparable part of the production process. The court found that the Commissioner's denial of MODVAT credit on the grounds that the railway tracks were also used for other purposes was extraneous. The incidental use for other purposes did not negate their primary function in the manufacturing process. The Commissioner's conclusion that the railway tracks were not used directly or indirectly for producing or processing goods was deemed factually incorrect and legally unsustainable. The CEGAT's affirmation of the Commissioner's order was found lacking as it did not address the issue from the correct legal perspective. The court concluded that the railway tracks met the criteria for "capital goods" under Rule 57Q, and the appellant was rightfully entitled to MODVAT credit for this item. Judgment: The Supreme Court set aside the orders of both the Commissioner and the CEGAT regarding the denial of MODVAT credit for the railway track material. The appellant's claim for MODVAT credit on this item was upheld, and the appeal was allowed. No order as to costs was made.
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