2015 (8) TMI 1054 - HC - Central Excise

Disallowance of CENVAT Credit - Inclusion of storage tanks/vessels within the scope of capital goods - effect of notification dated 1.3.2001 - prospective or retrospective - Held that - it is not possible to agree with Mr. Murthy that the amendments or changes brought about after 1st March, 2001 are only clarificatory in nature. If the period of dispute is 1997-98 and at that time the capital goods of the appellant were not mentioned with the heading numbers in the Table column (2), then, it is not possible to infer that storage tanks and storage vessels being integral or essential part of the manufacturing plant were always included. The reference to them may not be found in column (2), but since they were used in the factory of the manufacturer and being the integral part of the plant, they always intended to be included. If that was the position, then, there was no need for a specific amendment or change. These submissions cannot be accepted for obvious reason. Decision of Karnataka High Court in the case of Doodhganga Krishna Sahakari Sakkare Karkhane Niyamit 2012 (9) TMI 709 - KARNATAKA HIGH COURT distinguished for the reason that, when it completely omits from consideration the important aspects of this Rule, which we have noted above, the specific purpose of the amendments to Rule 57Q noted by us in the foregoing paragraphs, then, all this would enable us not to agree with the judgment of the Karnataka High Court and to this limited extent. - Decided against assessee.

Summary

Issues Involved:
1. Whether the Tribunal was correct in holding that storage tanks/vessels are excluded from the coverage of Rule 57Q of the Central Excise Rules, 1944.
2. Whether the Tribunal was correct in holding that when storage tanks/vessels have not been intentionally included under Rule 57Q, the benefit of Modvat credit cannot be extended to the same even though they are used in the factory of manufacture in the manufacture of the final product and form an integral part of the plot set up to manufacture the final product.

Issue-wise Detailed Analysis:

1. Exclusion of Storage Tanks/Vessels from Rule 57Q:
The Tribunal's decision was based on the interpretation of Rule 57Q of the Central Excise Rules, 1944. The rule specifies the applicability of Modvat credit to certain capital goods used in the manufacture of final products. The Tribunal observed that storage tanks/vessels were not explicitly mentioned in the Table under Rule 57Q, which lists the capital goods eligible for Modvat credit. The appellant argued that storage tanks/vessels are integral to the manufacturing process and should be included under Rule 57Q. However, the Tribunal held that since the storage tanks/vessels were not specifically included in the Table, they are excluded from the coverage of Rule 57Q. The High Court upheld this interpretation, stating that the amendments to Rule 57Q post-2001, which included storage tanks/vessels, could not be applied retrospectively to cover the period in question (1997-98).

2. Intentional Exclusion and Modvat Credit:
The Tribunal also held that the intentional exclusion of storage tanks/vessels from Rule 57Q implies that the benefit of Modvat credit cannot be extended to these items. The appellant contended that storage tanks/vessels are used in the factory of manufacture and form an integral part of the manufacturing setup, thus qualifying for Modvat credit. The appellant relied on the Karnataka High Court's decision in Commissioner of Central Excise, Mysore v. ICL Sugars Ltd., which suggested that amendments to Rule 57Q are clarificatory and should be given retrospective effect. However, the High Court distinguished the facts of the present case from the Karnataka High Court's decision, noting that the exclusion of storage tanks/vessels was clear from the rules applicable during the period in question. The High Court concluded that the Tribunal's decision was consistent with the prevailing rules and the specific exclusions mentioned therein.

Conclusion:
The High Court found no error in the Tribunal's interpretation of Rule 57Q and its decision to exclude storage tanks/vessels from Modvat credit eligibility. The amendments to Rule 57Q post-2001 were not considered clarificatory but rather substantive changes that could not be applied retrospectively. Consequently, the High Court answered the substantial questions of law against the assessee and in favor of the Revenue, thereby dismissing the appeal.