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TMI Blog1998 (9) TMI 600X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 to the tune of Rs. 66,34,58 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowed 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 used for erecting the cooling tower will come with the definition of the term capital goods under Rule 57Q. He relied on the Delhi High Court decision in CIT v. Pure Ice Cream Co. reported in [1981 (129) ITR 394] wherein it was held that cooling tower is essential part of an ice cream facto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st 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 bar in the Modvat scheme for utilising credit taken on new machinery prior to its utilisation. He drew attention to the fact that the new machinery was being installed only by way of upgradation of the existing unit of a running sugar-factory. He drew attention to the fact that Rule 57(2) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 available on that date. Scrutiny of Modvat declaration showed that the appellants had claimed Modvat credit on capital goods under Rule 57Q on 11 items, namely, (i) angles; (ii) channels; (iii) plates/HR coils; (iv) joists; (v) M.S. Beams; (vi) M.S. Bars; (vii) Pipes and tubes; (viii) cables; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y 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 goods which are produced/manu-factured from those capital goods on which credit is taken. Further, credit cannot be utilised except in the manner provided under Rule 57S(2). If the credit has been utilised in an irregular manner, the same is recoverable from the assessee by reversing the credit so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asses 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 was to give a wider meaning to the expressions like machinery, plant etc. and not to give them a narrow meaning. The provision therefore, should be regarded as including machines, machinery etc. fitted and used for producing or processing of any goods or for bringing about any change in any substance for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, nickel screens, A.C. motors, stainless tubes, parts of vacuum pans, bearings, turbines and pumps would be eligible for Modvat credit subject to the observations made by him in the said order. We also agree with his view that M.S. bars/Tor steel, being in the nature of building material, cannot be considered as capital ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rence 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 manufactured from these capital goods on which credit is taken, had held that if the appellants are compelled to make the payment, the debit entry for the said amount made in their RG-23-C, Part II would have to be cancelled, thereby increasing the available balance in the said Register. This credit would then be available to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . (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 unutilised credit under sub-rule (5) shall be allowed only if the stock of inputs as such or in process, if any, is also transferred along with the factory to the new site or ownership and that the stock of such inputs is duly accounted for to the satisfaction of the Commissioner. (7) Notwithstanding anything contained in sub-rule (1), a manufacturer may, after intimating the Assistant Commissioner of Central Excise having jurisdiction over the factory and obtaining dated acknowledgement of the same, remove ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sumption 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 also file a declaration in accordance with the provisions of sub-rule (1) of Rule 57R to the Assistant Commissioner of Central Excise having jurisdiction over his factory to the effect that such capital goods shall not be used exclusively for production of a final product which is exempt from the whole of the duty of excise leviable thereon (other than a final product which is exempt from the whole of the duty of excise leviable thereon under any notification where exemption is granted based upon the value or quantity of clearances made in a financial year) or is chargeable t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y 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 goods received during the month and the amount of credit taken along with the original duty paying documents and extracts of Parts I and II of Form RG 23C, and the Superintendent of Central Excise shall after verifying their genuineness, deface such documents and return the same to the manufacturer. (11) Notwithstanding anything contained in sub-rule (10), the Commissioner may, having regard to the nature, variety and extent of production or manufacture or frequency of removals - (i) fix in relation to any assessee or class of assessees a period shorter than ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pdt. 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 goods which were produced, manufactured from capital goods which were not installed at the time of manufacture of those goods, it is argued that the appellants have utilised the credit in an irregular manner. The same was, therefore, recoverable from the appellants by reversal of credit so utilised or by cash recovery/debit entry in the PLA under the provisions of: Rule 57Q. On a reading of the provisions of Rule 57S and Rule 57T, we do agree with the contention of the ld. Counsel that there is nothing in the said provisions restricting the utilisation of credit to final products/manufacture after the installation of the capi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roduct 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 taken place in the same factory. 18. In view of our above analysis, we are in agreement with the observation of the Commissioner that the credit of Rs. 40,07,308/- was not available to the appellants and to that extent there has been a short payment which can be demanded. However, for the reasons given by the Commissioner that the exercise of cancelling of the debit of the amount in their RG-23-C Part II will be only an academic exercise inasmuch as the said credit will be available to them on the sugar production after the commissioning of the new machinery, we also agree with the conclusion that installation of . 19. In ..... X X X X Extracts X X X X X X X X Extracts X X X X
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