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TMI Blog2011 (8) TMI 4X X X X Extracts X X X X X X X X Extracts X X X X ..... in the factory for installation of the Sugar manufacturing plant by the assessee can be classified as capital goods under Rule 57Q of the Central Excise Rules, 1944 [hereinafter referred to as "the Rules"]. THE FACTS : 3. The relevant facts for the purpose of this appeal are:- The assessee is the manufacturer of Sugar and Molasses. The assessee is availing MODVAT credit facility on the excise duty paid for the capital goods used in the factory for manufacturing process under Rule 57Q of the Rules. In April 1999, the assessee, in order to modernize the manufacturing process of sugar and molassess, has installed new machineries by replacing the old one. However, certain machineries like cane milling plant, clarification plant, evaporator and pan boiling plant, power generation plant etc., which are specified as capital goods in terms of Serial Nos. 2 and 3 of the Table below Sub-Rule 1 of Rule 57Q of the Rules, required the support of structural items for their installation. In view of this, the assessee started the manufacturing of iron and steel structures, after purchasing excise duty paid iron and steel sheets, angles, nuts and bolts etc. for the installation of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eferred an appeal before the Tribunal, the same was partly allowed. The Tribunal, vide its impugned order dated 10.12.2002, reduced the amount of penalty to Rs.1,00,000/- and affirmed the demand of duty on the ground that Chapter 73 of Schedule to the Tariff, Act under which the said Iron and Steel structures fall, has not been specified in the Table below Rule 57Q of the Rules and the machineries purchased by the assessee were complete in itself. The reasoning of the Tribunal is as under: "We have considered the submission of both the sides. The Ld. Advocate had shown us certain photographs where the impugned structures were used. According to him these structures form integral part of the machinery concerned without which the machinery cannot function. On query from the Bench, the Ld. Advocate has fairly conceded that the various machineries, which have been purchased by them, were complete. Accordingly, we do not find any substance in his submissions that these structures are components of the various machine/machineries. Notification No.67/95-CE provides exemption from payment of duty to the capital goods as defined in Rule 57Q if they are used in or in relation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der the Tariff Act, it would be treated as capital goods as covered by Serial No. 5 of the table below Rule 57Q. In support of this argument, the learned counsel, placing reliance on the Circular dated 02.12.1996, issued by Central Board of Excise and Customs [hereinafter referred to as "the CBEC"], submits that the components, spares and accessories to the eligible capital goods under Rule 57Q have been specified as capital goods on the basis of their description, instead of classification under the Tariff Act. He further submits that the said Iron and Steel structures, once used for the installation of various machineries, become part and parcel of the sugar manufacturing plant and without the help of said structures, the machineries cannot be installed and made functional. In other words, the said structures are also in the nature of components to the sugar manufacturing plant. He also submits, by placing reliance on Section Note 5 to Section XVI of the Tariff Act, that the expression `machine' has to be construed as plant and any component of the machine, being part of the machine, will also become part of the plant. He further submits that this Court in Commissioner of Central ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee can claim exemption, if provided. Drawing an analogy from the example of Wind Mill, the learned counsel submits that the Iron and Steel structures are the components or parts of the Sugar manufacturing plant and qualify as capital goods in terms of Serial No. 5 of the Table below Rule 57Q of the Rules. Arguendo, the learned counsel submits that the Iron and Steel structures are fabricated at the site of work for use in the construction or erection of the various machineries, therefore, can be classified under sub-heading 7308.50 under Chapter 73 of the Schedule to the Tariff Act which attracts Nil rate of duty. Alternatively, the learned counsel submits, by placing reliance on the judgment of this Court in Commissioner of Central Excise v. Wainganga Sahkari S. Karkhana Ltd., 2002 (142) ELT 12 (SC), that no excise duty is payable on structural items fabricated at site and used within the site. 5. Per contra, Shri. K. Swami, learned counsel for the Revenue, supports the findings and conclusion reached by the Tribunal and the department. He further submits that the Iron and Steel structures which fall under Chapter Heading 73 of the Schedule to the Tariff Act, is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... used for refrigeration and air-conditioning appliances and machinery); (5) Components, spares and accessories of the goods specified against S. Nos.1 to 4 above." ANALYSIS OF THIS MATERIAL : 7. The Tariff Act prescribes the rate of duty for each chapter head and sub-head. The Tariff Act has authorized the Central Govt. to modify the rates/duty by issuing notifications. Since exemption notifications are issued under delegated legislative power, they have full statutory force. The Notification No.67/95-CE dated 16.03.1995 specifically exempts capital goods as defined in Rule 57Q of the Rules. The other condition that is envisaged in the Notification is that the `capital goods' should be manufactured in a factory and used within the factory of production. If these twin conditions are satisfied, the capital goods are exempt from payment of excise duty. A party claiming exemption has to prove that he/it is eligible for exemption contained in the notification. An exemption notification has to be strictly construed. The conditions for taking benefit under the notification are also to be strictly interpreted. When the wordings of notification is clear, then the plain langu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es. It is the specific stand of the assessee that the goods in dispute are components of the goods specified in Items 2 and 3 of the Table to Rule 57Q of the Rules and since the capital goods include components and accessories, the Iron and Steel Structures manufactured within the factory are exempt from excise duty. 10. The expression "components" is not defined under the Act. Therefore, reference can be made to dictionaries to understand the meaning of the expression "components". In Webster Comprehensive dictionary, it is defined as `Constituent part'. In Oxford Advanced Learner's Dictionary, Volume 1, International Edition, the word "component" means a `constituent part'. Further, `constituent' means `serving to form or compose as a necessary part'. In Advanced Law Lexicon, 3rd Edition 2005, (by P. Ramanatha Aiyar), the word `component part' is defined as `something which becomes an integral part of the goods in question by losing its physical and economic distinctiveness'. It defines `constituent' (of a component) as `that helps make up or complete a unit or a whole's one part of something that makes up a whole'. Encyclopaedic Law Lexicon, Volume 2008-09 Editio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts in so far as manufacture of roll is concerned, but it is not `component part' in the manufacture of sheets. It is useful to quote the observations made by this Court :- "... paper core would also be constituent part of paper and would thus fall within the term "component parts" used in the Notification in so far as manufacture of paper in rolls is concerned. Paper core, however, cannot be said to be used in the manufacture of paper in sheets as component part. We are conscious that the relevant tariff item uses the word "paper" but since paper in rolls and paper in sheets are nothing but different forms of paper, both of them would be excisable goods as paper under the relevant tariff item." 15. In Modi Rubber Ltd. v. Union of India, (1997) 7 SCC 13, the appellant had set up tyre and tube manufacturing plant and imported various plants and machineries. While using the plants and machineries, PPLF (Polypropylene Liner Fabric) was used as a device in the form of liner components to various machinery units to protect the rubber-coated tyre fabric from atmospheric moisture and dust. This Court held that the PPLF was not a component of the machine itself. It was not a constit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... diffusers, vaccum pans, evaporators and sugar handling equipments, crystallizers, sugar grader, elevator and cooling tower. We can call these machineries as essential items in a sugar manufacturing plant. The assessee also fabricates Iron and Steel Structures for installation of the aforementioned equipments. Even according to learned senior counsel Sri Lakshmikumaran, these Iron and Steel Structures are used for effective functioning of Sugar Manufacturing Plant. Under the Notification, the Central Government had exempted duty in respect of "capital goods", as defined in Rule 57 Q of the Rules if they are utilized in a place where such goods are manufactured and used within the factory of production. The Notification specifically states that what is exempted under the Notification are "capital goods" as defined in Rule 57Q. Rule 57Q specifies five categories of items as capital goods. It is not the case of the assessee or its learned counsel that the exemption claimed was on Items 1 to 4 of the Table to Rule 57Q but as components which would fall under item No.5 of the Table to Rule 57Q. Therefore, in order to get the benefit of non excise duty on Iron and Steel Structure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he said rule cover capital goods by their classification whereas clause (d) covers goods by their description viz, components, spares and accessories of the said capital goods. It may be noted that there is a separate entry for components, spares and accessories and no reference has been made about their classification. As such, scope of this entry is not restricted only to the components, spares and accessories falling under Chapters 82, 84, 85 or 90 but covers all components, spares and accessories of the specified goods irrespective of their classification. The same was the position prior to amendment in Rule 57Q (i.e. prior to 23-7-1996) when credit was available on components, spares and accessories of the specified capital goods irrespective of their classification. 4. Accordingly, it is clarified that all parts, components, accessories, which are to be used with capital goods of clauses (a) to (c) of Explanation (1) of Rule 57Q and classifiable under any chapter heading are eligible for availment of Modvat credit." 22. The period in dispute is July 1999 to September 1999. The Circular is dated 02.12.1996. Therefore, it was applicable to the disputed period. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ht of the Pollution Control laws mandating that all plants emitting effluents should be equipped with apparatus to reduce or get rid of effluent gases. We are afraid that this decision would assist the appellants in support of the contention canvassed. In this instant case, the Court was considering whether steel plates and M.S. Channels used in fabrication of chimney for diesel generating sets are entitled to avail of MODVAT credit by treating them as capital goods in terms of Rule 57Q of the Central Excise Rules. This Court, applying `user test', has arrived at a conclusion that Steel Plates and MS Channels are used in the fabrication of chimney which is an integral part of the diesel generating set. Therefore, the test applied by this Court is whether the items that were at issue were integral part of a machinery. If that test is satisfied, there will not be any difficulty to hold a particular item of the machinery is a component part and therefore, will fall within the ambit of the expression `capital goods'. 24. In Simbhaoli Sugar Mills Ltd. v. Commissioner of Central Excise, Meerut, 2001 (135) ELT 1239 (Tri-Del), the appellant is a manufacturer of suga ..... X X X X Extracts X X X X X X X X Extracts X X X X
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