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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 ..... and Steel structures are not the components of machineries used in the installation of Sugar Manufacturing Plant - Decided against the assessee. - 5295 OF 2003 - - - Dated:- 2-8-2011 - D. K. JAIN, H. L. DATTU, JJ. J U D G M E N T H. L. DATTU, J. 1. This appeal is directed against the final Order of the Customs Excise and Gold (Control) Appellate Tribunal, New Delhi [hereinafter referred to as `the Tribunal'] dated 10.12.2002. By the impugned order, the Tribunal has confirmed the order passed by the Commissioner of Central Excise (Appeals), which has affirmed the order of the Assistant Commissioner of Central Excise, levying the duty and penalty under the Central Excise Act, 1944 (hereinafter referred to as `the Act'). THE ISSUE : 2. The bone of contention between the Appellant-assessee [hereinafter referred to as `the assessee'] and the Respondent [hereinafter referred to as `the Revenue'] can be crystallized thus: Whether the Iron and Steel structures manufactured and used captively 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 [hereinaf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal hearing before the Assistant Commissioner dated 21.03.2000 in order to show that the iron and steel structures are components of machinery and quintessential for its effective functioning. However, the Assistant Commissioner, vide its order dated 31.03.2000, confirmed the duty demand and imposed a penalty of Rs.5,00,000/- on the ground that the Notification is not applicable to the said Iron and Steel structures as they are neither inputs used in relation to the manufacture of final product nor capital goods as defined in Column 2 of the Table given below Sub-Rule (1) of Rule 57Q of the Rules. The assessee, aggrieved by the order of Assistant Commissioner, preferred an appeal before the Commissioner of Central Excise (Appeals). The Commissioner (Appeals), vide its order dated 23.11.2011, confirmed the order of the Assistant Commissioner and rejected the appeal on the ground that the said Iron and Steel structures form the part of the building. Being aggrieved, the assessee preferred 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 dut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4. The learned counsel Shri. V. Lakshmi Kumaran submits that the Iron and Steel structures are fabricated by the assessee in its factory and subsequently, used within the factory for installation and effective functioning of the sugar manufacturing machineries which falls under Serial NoS. 2 and 3 of the Table to Rule 57Q as capital goods. The said Iron and Steel structures are in the nature of components of the sugar manufacturing plant. Therefore, the said structures are capital goods in terms of Serial no. 5 of the Rule 57Q of the Rules. He further submits that the Tribunal has grossly erred in observing 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. In this regard, he contends that so long as the Iron and Steel Structures are used as component or accessory of the eligible machines falling under Serial No. 2 and 3, irrespective of its classification under 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as been dismissed by this Court. Drawing strength from the above decisions of this Court and the Tribunal, the learned counsel submits that the assessee is better placed as the iron and steel structures in issue form the integral and quintessential part of the Sugar manufacturing Plant and the whole machinery is so designed that without the said Iron and Steel structures, the sugar plant cannot function. He further submits that when individual items used for fabricating the structures in the nature of components to support the machinery are treated as capital goods in terms of Rule 57Q, then it will be against logic to say that structures are not components of the machines. The learned counsel submits, by referring to a circular dated 05.08.1997 issued by the CBEC, that in case of a Wind Mill, the tower acting as a structure to support the Wind Mill constitutes an essential component of the Wind Mill. Therefore, the support tower can be treated as capital goods and the assessee 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2.02 to 82.11; (2) All goods falling under Chapter 84 (other than internal combustion engines falling under heading No.84.07 and 84.08 and of a kind used in motor vehicles, compressors falling under heading No.84.14 and of a kind used in refrigerating and air-conditioning appliances and machinery, heading or sub-heading Nos.84.15, 85.18, 8422.10, 8424.10, fire extinguishers falling under sub-heading No.8424.80, 8424.91, 8424.99, 84.29 to 84.37, 8440, 84.50, 8452, 84.69 to 84.73, 84.76, 84.78, expansion valves and solenoid valves falling under sub-heading No.8481.10 of a kind used for refrigerating and air-conditioning appliances and machinery); (3) All goods falling under Chapter 85 (other than those falling under heading Nos.85.09 to 85.13, 85.16 to 85.31 and 85.40); (4) All goods falling under heading Nos.90.11 to 90.13, 90.16, 90.17, 98.22 (other than for medical use), 90.24 to 90.31 and 90.32 (other than of a kind 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 ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the items in dispute are independent goods manufactured by the assessee, though in its factory from the goods on which excise duty is paid cannot be construed as component parts of sugar manufacturing plant and therefore, is not entitled for the benefit of Notification No.67/1995 dated 16.03.1995. 9. As per Notification No.67/1995 dated 16.03.1995, capital goods as defined in Rule 57Q of the Rules manufactured in a factory and used within the factory of production are exempt from payment of Excise Duty. Rule 57Q of the Rules, specifies various items of goods falling under different chapter headings and sub-headings of the Tariff Act as capital goods. It is not the case of the assessee that Iron and Steel Structures manufactured by it in its factory are the goods which fall under Items 1 to 4 of Rule 57Q, though sugar manufacturing unit would fall under Item Nos. 2 and 3 of the Table to Rule 57Q of the Rules. 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 wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a component part of the whole or not. One must first look at the article itself and consider what its uses are and whether its only use or its primary or ordinary use is as the component part of another article. There cannot possibly be any serious dispute that in common parlance, components are items or parts which are used in the manufacture of the final product and without which, final product cannot be conceived of. 13. The meaning of the expression `component' in common parlance is that `component part of an article is an integral part necessary to the constitution of the whole article and without it, the article will not be complete'. 14. This Court, in Star Paper Mills (supra) has made a settled distinction while considering whether paper cores are `components' in the manufacture of paper rolls and manufacture of paper sheets. It is stated that `paper cores' are component parts 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 Not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h fitted into a machine subsequent to its manufacture, to replace a defective or worn-out part becomes a component of the machine. It is a component part." 17. The issue for our consideration, as we have already noticed, is whether the Iron and Steel Structures are components of the Capital Goods specified in the Table below Rule 57Q of the Rules. This issue can be resolved by looking into the literature which gives some glimpse how sugar is manufactured in a sugar industry and what is the essential machinery for manufacture of sugar. 18. The process of making sugar commences from the stage of collecting the harvest, cleansing and grinding, juicing, clarifying, evaporation, crystallization, refining and lastly separation and packing. For the purpose of manufacturing cane sugar in a sugar industry, the essential machineries that are required are sugar presses, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this issue before us for the first time. Therefore, this contention of the learned counsel is rejected. 21. Now coming to the last contention canvassed by the learned counsel that the Tribunal is not correct in holding that the assessee failed to establish that the steel structures are components of the capital goods as specified in the Table below Rule 57Q of the Rules and, therefore, are not eligible for exemption under the notification. This issue requires to be answered with reference to Circular No. 276/110/96-TRV dated 02.12.1996 issued by the CBEC. The relevant portion of the Circular is as under :- "3.The matter has been examined. With effect from 23-7-1 996, capital goods eligible for credit under Rule 57Q have been specified either by their classification or by their description. Clauses (a) to (c) of Explanation (1) of the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hannels, as capital goods in terms of Serial No.5 of the Table given below Rule 57Q, used for erection of the chimney for the diesel generating set. The parties were ad idem that diesel generating set falls under chapter heading 85 which is mentioned at Serial No.3 of the Table and also the chimney is an accessory in terms of Serial No.5 of the Table given below 57Q. The issue which was agitated before the Court was whether the Steel plates and MS Channels used in the fabrication of chimney are capital goods in terms of Serial No.5 of the Table below Rule 57Q. This Court, whilst applying the user test, had held that the steel plates and MS Channels used in the fabrication of chimney are capital goods as contemplated by Rule 57Q as the chimney is not only an accessory but also an integral part of the diesel generating set in the light 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 fabricati ..... X X X X Extracts X X X X X X X X Extracts X X X X
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