9911796707
TMI Blog1998 (9) TMI 600X X X X Extracts X X X X X X X X Extracts X X X X ..... t the items on which the credit was availed were not installed and put to use for the manufacture of sugar, their final product. 3. Appearing for M/s. Simbhaoli Sugar Mills Ltd., Shri M. Chandersekharan, ld. Sr. Counsel (along with Ms. Anuranjana K. Singh, Advocate) submitted that by the impugned order the Commissioner Central Excise, Meerut had confirmed a demand of Rs. 8,06,796/- and imposed a penalty of Rs. 3 lakhs on them. Appellants are engaged in the manufacture of sugar. Molasses emerged as a by-product during the course of manufacture of sugar. Their plant had two parts, namely, Mill House and Process House. In the Mill House sugarcane is crushed to extract juice. In the Process House the juice is processed to convert it into sugar. The fibre part of the sugarcane known as 'baggasse' obtained at the time of crushing in the Mill House is sent to the Boiler Section with the help of baggasse carrier. During the year 1994 the appellants had undertaken upgradation of their unit by addition of new machinery and equipments in the Process House. They filed a Modvat declaration under Rule 57T of the Central Excise Rules, 1944 with effect from 16-6-94 and availed Modvat credit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sp; Wheel shaft. 7. After disallowing credit on the said items to the tune of Rs. 8,06,796/- the Commissioner had also imposed a penalty of Rs. 3 lakhs. Ld. Counsel relied on the Tribunal decision in Century Cements v. CCE, Raipur, [1997 (95) E.L.T. 655] in which the Tribunal had allowed Modvat credit on capital goods which were analogous to the items under consideration. He made the following submissions on the individual items: As regards M.S. Bars/TOR steel it was submitted that these had been used in the erection of a new cooling tower. The cooling tower has a concrete structure with fans on top and is used to cool down the hot water received from the plant for re-circulation. Since huge quantities of water are required in the manufacturing process of sugar and this water gets heated by transfer of heat and since it was not possible to provide fresh water in such huge quantities hot water is cooled in the cooling tower and reused in cycles. Cooling tower is therefore, an essential part of the sugar plant and M.S. Bar and TOR steel are essential components without the use of which cooling tower cannot be erected. He, therefore, submitted that M.S. Bars and TOR steel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... correct to deny Modvat credit on gear box spare part merely because it had not been mentioned in invoice/gate pass by the supplier of goods with its corresponding chapter sub-heading. As regards air drier chain, spares and valves, ld. Counsel explained that air drier was used to draw moist air to make it moisture-free before using it in various meters and instruments controlling the process. Without dried air the instruments cannot be functional and may give erroneous readings/results which would affect the production process. These being essential parts of sugar plant they would be covered by the definition of capital goods under Rule 57Q. As regards denial of credit of valves, it was contended that while credit had been allowed on pipes, disallowing the same on valves which were fitted in the pipes for performing transporting of semi-finished material was clearly illogical. As regards utilisation of credit taken on new machinery for payment of duty on sugar manufactured prior to the installation of the new machinery, ld. Counsel submitted that though the Commissioner had dropped the demand, nevertheless penalty had been imposed on them. ld. Counsel submitted that there was no b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -94 and additional modvat declaration had also been filed from time to time on the basis of which they had started availing Modvat credit on capital goods as per their declarations. It was also found that the appellants had utilised the credit so availed towards payment of central excise duty on clearances of sugar which were produced in their existing sugar plant and not in the new plant. Officers further observed that sugar on which credit on capital goods had been availed since 16-6-94 and utilised towards payment of duty since August, 1994 was the produce of the previous sugar season i.e. 1993, which related to the old sugar plant. The statement of Shri Joginder Singh, Authorised Signatory, was recorded in which he admitted that they had availed Modvat credit on capital goods to the extent of Rs. 66,34,586.21 from 15-6-94 to 26-10-94 and out of which they had utilised Rs. 39,34,584.06 from August, 94 to October, 1994 towards payment of excise duty on clearances of sugar. The Authorised Signatory had also stated that as per the excise manual credit taken in RG-23-Part II become available ipso facto and there was no bar to the said credit being utilised against any stock of sugar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in their RG-23-C Part II. Since on the whole there was no loss or gain to the Government exchequer and since the excisability was of academic interest only, the Commissioner did not confirm the demand of duty of the total inadmissible Modvat credit of Rs. 40,99,876.00. The Commissioner had only partly confirmed the demand for Rs. 8,06,796/- and had allowed adjustment of the said amount against credit of Rs. 11,40,096.00 reversed under protest by the appellants in RG-23C Part II. The Commissioner therefore allowed the balance credit of Rs. 32,83,080/- availed on various accounts by the appellants subject to the necessary verification by the jurisdictional Assistant Commissioner. 10. Ld. JDR contended that the Department is in appeal against the said order on the following grounds : In failing to confirm the demand of Rs. 40,07,308/- short paid by utilising the credit availed on capital goods towards payment of duty on the clearances of sugar which was produced in the previous sugar season, without installing the items in question on which credit had been availed, the Commissioner had failed to take note of the fact; that credit of specified duty can be allowed only for those ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lity for Modvat credit on impugned items Commissioner had in paragraph 5(iv) to (x) held that joists, channels, angles, M.S. Beams, H.R. sheets, H.R. Coils, panels/controller/regulator, busbars, A.C. Motors, Nickle screens, steel tubes, parts of vacuum pans, parts of turbine bearings, pumps (other than molasses pumps) have a link in the total process of operational integration and therefore can be regarded as machinery or plant pertaining to the manufacturing process. He had relied on the Apex Court judgment in the case of CIT v. Meer Mohd. Ali, [(1994) 53 ITR 165] holding that machinery would not be machinery merely because it has to be used in conjunction with one or more machines or is installed as part of a manufacturing industrial plant. He had also relied on the Calcutta High Court judgment in Tribeni Tissues Ltd. v. CIT (1991) 190 ITR 487 in this behalf. Rule 57Q provides that capital goods means machines, machineries, 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 the final products. This clearly indicated that the intention of the rule making authority w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, on the basis of the Apex Court decision in J.K. Cotton Spinning and Weaving Mills Co. Ltd. v. Sales Tax Officer, Kanpur, [1997 (91) E.L.T. 34 (S.C.)]. Following the said decision we hold that M.S. bars/TOR steel used in the erection of cooling tower cannot be held to come within the definition of capital goods for purposes of availing Modvat credit. Further, in Upper Ganges Sugar & Industries Ltd v. Collector of Central Excise, Meerut [1998 (98) E.L.T. 166 (T)], the Tribunal held that where pipes and tubes are used in sugar industry for carrying cane juice from one part of the plant to another they are to be treated as part of the plant and hence credit would be allowable in respect of the said goods. The Tribunal had also held that transformers installed in a plant are eligible to be considered as capital goods in Collector of Central Excise v. Indian Rayons Ltd. [1996 (88) E.L.T. 381]. Taking into account the aforesaid decisions we are inclined to agree with the observations of the Commissioner in paragraph 5(iv) of his order that joists/channels/angles, M.S. beams, H.R. sheets, H.R. Coils, transformers, panels, cables, bus bars, controllers, regulators and transmitters, nicke ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... haft taken on the basis of despatch advise would not also be admissible. 15. As regards credit of Rs. 3 lakhs taken by the assessee on the strength of original copies of bills which had been allowed by the Commissioner subject to the satisfaction of the Assistant Commissioner, we do not consider that any interference is called for likewise we also do not find any reason to interfere with the Commissioner's direction that credit on Rs. 1,42,540/- taken on the bills of unregistered dealers be allowed if the appellants are able to satisfy the jurisdictional Assistant Collector that they have complied with the conditions laid down in the Board's Circular No. 76/76/94-CX, dated 6-11-94. 16. As regards the Department's objection to the Commissioner not confirming the demand of Rs. 40,07,308.00 short paid we find that the Commissioner had dealt with the aspect in detail in paragraph 8 of the impugned order. While holding that the utilisation of the credit of the said amount towards payment of duty on sugar produced in the year 1993 was not available, on the ground that the provisions governing credit on capital goods allow credit only for those goods which are produced or manu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (i) on any of the final products manufactured in the factory of the manufacturer; or (ii) on the waste, if any, arising in the course of manufacture of the final products; or (iii) on the capital goods themselves if such capital goods are removed under sub-rule (1). (4) No part of the credit of duty allowed, shall be utilised save as provided in sub-rule (3) or, shall be refunded in cash or by cheque. (5) On an application made by a manufacturer of the final products, the Commissioner may subject to such conditions and limitations as he may impose, permit a manufacturer having credit in his account in Form RG 23C maintained under Rule 57T and lying unutilised on account of shifting of the factory belonging to the manufacturer, to another site, or on account of change in ownership, or change in the site of a factory resulting from sale, merger, amalgamation or transfer to a joint venture with the specific provision for transfer of liabilities of the old factory, to transfer such unutilised credit to such transferred, sold, merged or amalgamated factory. (6) Transfer of unuti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ether cleared for home consumption or for export; (b) on the first day of August, 1997, with the manufacturer of hot re-rolled products of non-alloy steel falling under sub-heading Nos. 7211.19, 7211.59, 7211.60, 7211.99, 7214.90, 7215.90, 7216.10 and 7216.90 of the Schedule to the Central Excise Tariff Act, 1985 (5 of 1986), and who is required to pay duty under Section 3A of the Central Excise Act, 1944 (1 of 1944), shall lapse and shall not be allowed to be utilised for payment of duty on any excisable goods, whether cleared for home consumption or for export; 57T. Procedure to be observed by the manufacturer. - (1) Every manufacturer intending to take credit of the duty paid on the capital goods under Rule 57Q shall, before receipt of the capital goods, file a declaration with the Assistant Commissioner of Central Excise having jurisdiction over his factory, indicating therein the particulars of the capital goods, description of the final products manufactured in his factory and such further information as the Assistant Commissioner may require, and shall obtain a dated acknowledgement of the said declaration. (2) The manufacturer shall al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tal goods are received in the factory premises of the manufacturer under the cover of a document specified under rule 57G evidencing the payment of duty on such capital goods. (7) The Assistant Commissioner may, on sufficient cause being shown to him, allow the manufacturer to take credit of the specified duty on capital goods, paid by a contractor or job worker who undertakes the job of initial setting up, renovation, modernisation or expansion of the plant on behalf of the manufacturer of final products, subject to such procedure and conditions as may be specified by the Commissioner or the Central Board of Excise and Customs. (8) If the Assistant Commissioner of Central Excise is satisfied that the duplicate copy of the invoice has been lost in transit, he may allow a manufacturer of final products, to take credit under sub-rule (6) on the basis of the original copy of the invoice. (9) A manufacturer of the final products shall maintain an account in Parts I and II of Form RG 23C. (10) A manufacturer of the final products shall, within five days after the close of each month, submit to the Superintendent of Central Excise a return indicating the particulars of the capital go ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y in relation to the time when credit can be taken and not as to when it can be utilised. The appellants, have, therefore, contended that as soon as credit is taken by an assessee it became available for utilisation towards payment of duty on any of the final products manufactured by the assessee irrespective of when the manufacture took place, especially when there is no dispute about the manufacture taking place in the same factory. Further, since the appellants had filed all the RT-12 Returns regularly and disclosed the utilisation of credit during the material period between August, 1994 and September, 1994 and Range Supdt. had not denied the benefit of utilisation of Modvat credit so availed, there is no question of their not complying with any of the Modvat provisions or concealments of any facts. The Department on the other hand contends that credit of specified duty shall be allowed only for those goods which are produced/manufactured from those capital goods on which credit is taken. According to the Department, credit cannot be utilised except in the manner provided under sub-Rule (2) of 57S. Since in the instant case the credit had been utilised for payment of duty on go ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce in the character and status of the factory before and after the installation of the capital goods. Capital goods on which credit was taken was to be utilised for the production/manufacture of the final product in the factory of the manufacturer after the capital goods are installed and are used in the manufacture of the final product. Though, in an existing factory it may not always be possible to precisely distinguish the volume or quantity of final products emerging from the specific use of the new capital goods on which credit had been taken, it is implicit that a clear nexus between the capital goods and the final product has to be shown. In the admitted facts of the case it is not in dispute that the credit taken on the capital goods have been utilised for payment of duty on final products produced/manufactured before the installation of the capital goods on which credit had been taken. Therefore, no link between the capital goods for which credit had been taken and the final product for which the credit had been utilised, has been established though, for purposes of Rule 57S(2) both the installation of capital goods and production/manufacture of the final product had take ..... X X X X Extracts X X X X X X X X Extracts X X X X
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