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TMI Blog1999 (4) TMI 153X X X X Extracts X X X X X X X X Extracts X X X X ..... final product and that the goods in question are not such goods. The Revenue is also of the view that the amendment in Rule 57Q which was made on 16-3-1995 is prospective and not retrospective in operation. 3. In the case of Jawahar Mills Ltd., Modvat credit has been denied on power cables and capacitors; the period of dispute is March 1994 to October 1994. This case has been referred to the Larger Bench by Misc. Order No. 52/98, dated 27-1-1998 [1998 (100) E.L.T. 41 (Tribunal)], in view of the conflicting views expressed in the Tribunal's order - Modvat credit had been extended on wires and cables in the cases of Century Cement Ltd. v. Collector of Central Excise - 1997 (95) E.L.T. 655, Grasim Cement v. Collector of Central Excise - 1997 (96) E.L.T. 354 and other cases while in the case of SIV Industries by Final Order No. 646/96 dated 16-4-1996, the Tribunal had held that wires and cables used for transmission of electricity would not be eligible to the benefit of Modvat credit as they are not eligible to capital goods in terms of Rule 57Q. 4. In the case of Indian Refrigeration Company Ltd. the items are control panels, cables, distribution boards, switches and start ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under section 3 of the Customs Tariff Act, 1975 (51 of 1975) equivalent to the duty of excise paid on such capital goods. Explanation. - For the purposes of this section, - (1) `Capital goods' means - (a) machines, machinery, plant, equipment, apparatus, tools or appliances used for producing or processing of any goods or for bringing about any change in any substance for the manufacture of final products: (b) Components, spare parts and accessories of the aforesaid machines, machinery, plant, equipment, apparatus, tools or appliances used for aforesaid purpose; and (c) moulds and dies , generating sets and weigh bridges used in the factory of the manufacturer. (2) Notwithstanding anything contained in sub-rule (1), no credit of specified duty paid on capital goods shall be allowed if such duty has been paid on such capital goods before the 1st day of March 1994. Sub-clauses (d) and (e) were added to Explanation 1 of Rule 57Q vide Notification No. 11/95-C.E. (N.T.), dated 16-3-1995. The same also introduced sub-rule 57Q(2). The same is reproduced below : (d) following goods falling within the Schedule to the Central Excise Tariff Act, 1985 (5 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r heading 84.14 and of a kind used in refrigerating and air conditioning appliances and machinery, heading or sub-heading 84.15, 84.18, 84.24, 84.29 to 84.37, 84.40, 84.50, 84.52, 84.69 to 84.74, 84.76, 84.78 expansion valves and solenoid valves falling under sub-heading 8481.10 of a kind used for refrigerating and air-conditioning appliances and machinery); (b) all goods falling under chapter 85 (other than those falling under heading 85.09 to 85.13, 85.16 to 85.31, 85.39 and 85.40); (c) all goods falling under heading 90.11 to 90.13, 90.16, 90.17, 90.22 (other than for medical use) 90.24 to 90.31 and 90.32), (other than of a kind used for refrigerating and air conditioning appliances and machinery); (d) components, spares and accessories of the goods specified against items (a) to (c) above; (e) moulds and dies: (f) refractories and refractory materials; (g) tubes and pipes of iron and steel or copper or aluminium used for conveying inputs, on which credit of duty is taken, intermediate goods or final products in the factory; and (h) pollution control equipment (2) `specified duty' means duty of excise or the additional duty under s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been extended by specifying a large number of machinery which will qualify for credit under Rule 57Q. In respect of such capital goods, it has been provided that so long these are used in the factory of production, credit will be allowed, without the need to establish as to whether such capital goods are used in the manufacture of finished goods. It may be clarified that any equipment etc. purchased by a manufacturer but not used within the factory will not be admissible for Modvat. For instance, R&D equipment used by a manufacturer in their laboratory outside the factory will not be eligible for Modvat. If however, such laboratory is part of the manufacturer's factory, Modvat will be admissible." 11. Para 5.1 is the relevant portion of the Budget circular issued by CBEC in connection with Finance Bill, 1996 and the same reads as under : Modvat Scheme - the Modvat scheme has been amended in several respects. - In Rule 57Q(1), specific headings and sub-headings have been mentioned. Thus any goods falling under these would be admissible for Modvat credit and anything not falling under these headings or sub-headings will not be admissible for Modvat credit. This has been d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sampling and analysing of ores and other raw materials in the mining operations and in the process of manufacture. Stationery was required for maintenance of records and returns furnished to the Government departments. etc. Cane baskets were required for carrying ore and other materials used in the process of manufacture and also for use of the sanitary department for collecting refuse to protect cleanliness and health in the colony of the workers. 16. Of the above items, the High Court excluded the locomotives and motor vehicles used by the Corporation after the mining operations were concluded and before the manufacturing process commenced, as also vehicles used in carrying the finished products from the factory on the conclusion of the process of manufacture, on the ground that these are not intended for use in the manufacture or processing of goods for sale or in the mining operations. Laboratory fittings used for sample and analysis of the ore and the raw materials in the initial stages of mining and in the process of manufacture, were held to be eligible by the High Court, but not hospital equipments, stationery and cane baskets used for carrying refuse. Cane baskets us ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are not comprehended in the expression `in the manufacture or processing of goods for sale' within the meaning of Section 8(3)(b) read with Rule 13. 18. As seen from para 7 of the judgment, the High Court confirmed the exclusion of drawing and photographic material on the ground that these materials are required merely in the preparation of design which though necessary for turning out textile goods, cannot be said to be goods intended for use in the manufacture of goods. The Supreme Court conceded to the observation of the High Court that without the use of drawing and photographic materials, designing of patterns would, if not impossible, be very difficult. 19. The relevant extract of the above judgment is as under : "7. ... But the High Court was apparently of the view, and that view is supported by counsel for the Sales Tax officer, that goods intended for use in the manufacture of goods or processing of goods for sale must of necessity to be goods which are used as ingredients or commodity in the creation of goods, or which are directly and actually needed for turning out or making of the goods. 8. .... it would be difficult to regard goods used only in the proc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as equipment for use in the manufacture of goods for sale are expressly made admissible for specification. 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. 12. ... The expression `electricals' is somewhat vague. But in a factory manufacturing cotton and other textiles, certain electrical equipment in the present stage of development would be commercially necessary. For instance, without electric lighting, it would be very difficult to carry out the business. Again electrical humidifiers, exhaust fans and similar electrical equipment would be in the modern conditions of technological development normally be regarded as equipment necessary to effectively carry on the manufacturing process. We are not prepared to agree with the High Court that in order that electrical equipment should fall within the terms of Rule 13, it must be an ingredient to the finished goods to be prepared or it must be a commodity which i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aterials, processing materials, machinery, plant, equipment, tools, stores, spare parts, accessories, fuel or lubricants in the manufacture or processing of goods for sale. Rule 13, no doubt, referred to raw material, processing material, fuels, lubricants and stores. Also the rest of the items mentioned in Rule 13 viz. machinery, plant, equipment and tools are indeed items indicated in Explanation 1(a) to Rule 57Q. Spare parts and accessories figure in Explanation 1(b) to Rule 57Q. Thus the language employed in the first portion of Explanation 1(a), viz. machinery, machine, plant etc. is also the language employed in Rule 13. Thus the provisions construed by Supreme Court are in pari materia with Explanation 1(a) of Rule 57Q. Therefore, the aforesaid two judgments of the Supreme Court are directly relevant for the present purposes. 23. While construing the expression, "in the manufacture of goods," occurring in Notification 201/79, the Five Member (Larger) Bench of the Tribunal in Shri Ram Rayons v. CCE [1987 (30) E.L.T. 850] held as under : "The expression in the manufacture of goods should normally encompass the entire process carried on by the dealer of converting raw ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the manufacture of such goods. Every item of machinery which has a use in the manufacture of finished goods, which plays some role in the process of manufacture of finished goods and without which manufacture of finished goods would not be possible would be machinery used in the manufacture of such goods. Such machinery would be an essential and integral part of the plant which manufactures finished goods and would certainly satisfy the description that it is machinery used in the manufacture of finished goods. If this test be applied, it is clear that humidifiers are machinery used in the manufacture of cloth. It is evident from the finding given by the Deputy Commissioner of Sales-tax and accepted by the Tribunal that humidifiers are used by cotton textile mills in order to maintain certain humidity for the purpose of increasing the strength of yarn, avoiding breakages of yarn and improving the quality of yarn and they are essential to the modern textile industry. They play an important role in the manufacturing process in that they provide a particular humidity without which yarn would not acquire proper strength and there may be breakages in yarn affecting not only the quality ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... used for production or processing. It was contended that this expression, for the manufacture was even wider than the expression `in the manufacture'. This aspect of the matter is conclusively supported by the decision of the Supreme Court in Oblum Electrical Industries Pvt. Ltd. [1997 (94) E.L.T. 449 S.C.] in which the Apex Court was construing the Customs Notification No. 116/88-Cus., dated 30-3-1998. That notification inter alia exempted `materials required to be imported for the purpose of manufacture of products (hereinafter referred to as the resultant products or replenishment of materials used in the manufacture of resultant products, or both'. The Supreme Court in that context held as under : "In the notification, two different expressions have been used namely, materials required to be imported for the purpose of manufacture of products and replenishment of materials used in the manufacture of resultant products, which indicates that the two expressions have not been used in the same sense. The expression materials required to be imported for the purpose of manufacture of products cannot be construed as referring only to materials which are used in the manufacture of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on Spinning & Weaving Mills Co. Ltd. case [1997 (91) E.L.T. 34], the Supreme Court in para 7 noticed the reasoning of the High Court which was also stressed by the Revenue before the Supreme Court that the goods intended for use in the manufacture of goods or processing of goods must be of necessity, goods used as ingredients or commodities in the creation of goods or which are directly and actually needed for turning out or making the goods. This was in express terms rejected in para 8 of the judgment. In para 10, the Supreme Court held that the expression `in the manufacture of goods,' cannot be limited to process or production of goods only. The Court held that drawing and photographic materials are covered. Under the category of electricals, the Supreme Court covered electrical humidifiers, exhaust fans and electrical equipments and even electrical electrical lightings. However, electrical equipments not directly connected with the process of manufacture and office equipments like fans, coolers and air-conditioners were held to be not covered by Section 8(3)(b). Further in view of judgment of Supreme Court in Oblum Electrical Industries P. Ltd. v. CC, the expression employed in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ness - not his stock-in-trade which he buys or makes for sale; but all goods and chattels, fixed or movable, live or dead, which he keeps for permanent employment in his business." The Supreme Court then summarised its conclusion as under : "In other words the test would be : does the article fulfil the function of a plant in the assessee's trading activity? Is it a tool of his trade with which he carries on his business? If the answer is in the affirmative it will be a plant." As already seen, though the above decision was rendered in the context of Section 43(3) of the Income Tax Act, 1961, which contained a very wide definition of the expression "plant", the above interpretation of the expression, "plant", was not because of any special or particular defintion of that expression in the Income Tax Act. Therefore, the test laid down by the Supreme Court in the above case would be relevant for construing the expression "plant" employed in Explanation 1(a) to Rule 57Q. Interestingly, even without reference to the aforesaid judgment of the Supreme Court, the Single Member Bench of this Tribunal in Valley Abrasives Ltd. v. CCE - 1997 (91) E.L.T. 700 has held as under : "6. Therefo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... three distinct expressions viz. (i) used for producing of goods for the manufacture of the final product (ii) used for processing of any goods for the manufacture of the final product and (iii) used for bringing about any change in any substance for the manufacture of the final product. When these three different and distinct expressions are used, it will not be possible and correct to construe the expression `used for producing of any goods for the manufacture of the final product' as synonymous with `used' for bringing about any change in any substance for the manufacture of the final product. Similarly, it would not be correct to construe the expression `used for processing of any goods for the manufacture of the final product' as synonymous with `used for bringing about any change in any substance for the manufacture of the final product. The contention of the Revenue that clause 1(a) would confine itself to production machinery used for bringing about any change in any substance for the manufacture of the final product will also imply that the Supreme Court's decision in Indian Farmers Fertilizer Coop. Ltd. and J.K. Cotton Spg. & Wvg. Mills Co. Pvt. Ltd. case extending the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat in terms of Explanation 1(a), the item must have a direct nexus with the final product being produced. This contention is contrary to the decision of the Supreme Court in the Indian Copper Corporation case and J.K. Cotton Spg. & Wvg. Mills Co. Pvt. Ltd. case cited supra. 39. The matter may be considered in the light of the above. Wires and cables would be covered by the expression `plant' being an item necessary for the assessee to carry on his business and being an item not in the nature of a consumable, but an item having fairly high degree of durability. It therefore, satisfies the definition of plant. 40. Similarly, the other items involved in these cases namely control panels, cables, welding electrodes, etc. will also qualify as capital goods under Rule 57Q and would be eligible for Modvat credit and we order accordingly. 41. In the light of the above, the issue as to whether the amendment effected in Notification 11/95, dated 16-3-1995 under Rule 57Q and Notification 14/96-C.E. dated 23-7-1996 is retrospective, becomes academic. We have to decide the matter according to the language of the provision as it stood at the material time. We are required to e ..... X X X X Extracts X X X X X X X X Extracts X X X X
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