Commissioner
of Central Excise, Coimbator & Ors Vs. Jawahar Mills Ltd. & Ors [2001] Insc
346 (27 July 2001)
S.P.
Bharucha & Y.K. Sabharwal Y.K.Sabharwal, J.
[With
C.A.Nos.590-591, 599, 420, 627, 653, 654, 674, 897-898, 899-900, 901, 819, 818,
799, 806, 816, 817, 874, 873, 872, 842, 1082, 1085, 1114, 1117, 1118, 1463,
1464 of 2000 S.L.P. (C) No.2954/2000, C.A. Nos.1896, 1895, 1812, 1785, 1784,
1532, 1962, 1963, 1964, 2000-2001, 2051, 2156, 2157, 2210, 2220 of 2000, S.L.P.
(C) No.5450/2000, C.A. Nos.2197, 2196, 2132, 2131, 2308, 2303-04, 2306-2307,
2342, 2309, 2385, 2386, 2407-2409, 2419, 2418, 2417, 2410, 2420, 2553,
2539-2544, 2545, 2538, 2554, 2552, 2537, 2606, 2607, 2387, 2626-2628,
2669-2670, 2671, 2674, 2668, 2667, 2666, 2673, 2707, 2750, 2744, 2749, 2582,
2890, 2748, 2891-2894, 2899, 2907-2921, 2906, 2905, 2902-2904, 2978, 3001-3004,
3063, 3074, 3075, 3062 & 3560, 2929, 3292, 3276-3282, 2275 3168-3169,
3522-3529, 3439- 3440, 3537, 3540, 3541, 3547, 3543-3544, 3588, 3630, 3637,
3633, 3636, 3629, 3551, 3707-3708, 3701-3702, 3713-3718, 3720-3725, 3828, 4290
of 2000, S.L.P. (C) No.11676/2000, C.A. Nos.4208, 4254-4260, 4289, 4559, 4616,
4513-4514, 4486, 4511, 4821, 4742, 4779, 4766, 4943, 5315, 5555, 5659, 5522,
5832, 5155-5162, 5971-5973, 5633-5634, 5978, 6077, 2944, 6459, 6581, 6578-6579,
6871, 7164 of 2000, C.A. Nos. 304, 285-289, 748 of 2001, S.L.P. (C)
No.1901/2001, C.A. Nos.1261, 1495-1497, 2997-2998 of 2001, 3427-3428 of 2000,
3855 of 2001 and CA No.D2801/2000]
In
this batch of appeals the only point in issue is regarding availing of Modvat
Credit in respect of certain items by the manufacturers treating those items as
`Capital goods' in terms of Rule 57Q of the Central Excise Rules, 1944. The
controversy was whether those items were `Capital goods' or not within the
meaning of Rule 57Q.
Rule
57Q was introduced by Notification No.4/94-CE dated 1 March, 1994. It enabled manufacturers to claim Modvat Credit of duty
paid on `Capital goods' used in their factory. The expression `Capital goods'
has been defined in the Explanation to Rule 57Q. For the proper appreciation of
the controversy between the parties it would be convenient to reproduce Rule
57Q along with its Explanation. It reads as under:
"57Q.
Applicability. - (1) The provisions of this section shall apply to finished
excisable goods of the description specified in the Annexure below (hereinafter
referred to as the `final products') for the purpose of allowing credit of
specified duty paid on the `Capital goods' used by the manufacturer in his factory
and for utilizing the credit so allowed towards payment of duty of excise leviable
in the final products, or as the case may be, on such capital goods, if such
capital goods have been permitted to be cleaned under rule 57S, subject to the
provisions of this section and the conditions and restrictions as the Central
Government may specify in this behalf:
Provided
that credit of specified duty in respect of any capital goods produced or
manufactured - (a) in a free trade zone and used for the manufacture of final
products in any other place in India; or
(b) by
a hundred per cent export-oriented undertaking or by a unit in an Electronic
Hardware Technology Park and used for the manufacture of final products in any
place in India, shall be restricted to the extent of duty which is equal to the
additional duty leviable on like goods 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.
(1) `specified
duty' means duty of excise or the additional duty under section 3 of the
Customs Tariff Act, 1975 (51 of 1975).
(2) Notwithstanding
anything contained in sub- rule (1), no credit of the 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."
The
Tribunal by the impugned judgment and order dated 13th April, 1999, considered
various items which were involved in different appeals and by a common judgment
and order decided the controversy in favour of the manufacturers rejecting the
stand of the revenue that those are not `Capital goods' within the meaning of
Explanation (1)(a) defining `Capital goods'.
Some
of the items considered by the Tribunal are : power cables and capacitors in
case of Jawahar Mills Ltd.; control panels, cables distribution boards,
switches and starters and air compressors in the case of Indian Refrigeration
Co. Ltd.; electric wires and cables in the case of Kothari Sugar and Vijay
Chemicals. The Tribunal on consideration of the aforesaid provision and various
decisions including some of this Court one of it being by a Bench of which one
of us (Bharucha, J.) was a member {Indian Farmers Fertilisers Cooperative Ltd.
v. Collector of Central Excise, Ahmedabad [(1996) 5 SCC 488]} came to the
conclusion that the items involved qualify as `Capital goods' under Rule 57Q
and would thus be eligible for Modvat Credit. The Tribunal did not accept the
contention of the Revenue that the items were not `Capital goods' within the
meaning of term as defined in Explanation (1).
The
aforesaid definition of `Capital goods' is very wide. Capital goods can be
machines, machinery, plant equipment, apparatus, tools or appliances. Any of
these goods if used for producing or processing of any goods or for bringing
about any change in any substance for the manufacture of final product would be
`Capital goods', and, therefore, qualify for availing Modvat Credit. Per clause
(b), the components, spare parts and accessories of the goods mentioned in clause
(a) used for the purposes enumerated therein would also be `Capital goods' and
qualify for Modvat Credit entitlement. Clause (c) makes moulds and dies,
generating sets and weigh bridges used in the factory of the manufacturers as
capital goods and thus qualify for availing Modvat Credit. The goods enumerated
in clause (c) need not be used for producing the final product or used in the
process of any goods for the manufacture of final product or used for bringing
about any change in any substance for the manufacture of final product and the
only requirement is that the same should be used in the factory of the
manufacturer. Thus, it can be seen that the language used in the explanation is
very liberal.
In the
case of Indian Farmers Fertiliser Cooperative Ltd. (supra) this Court
interpreted the notification which conferred exemption in respect of such raw
naphtha as was used in the manufacture of ammonia provided such ammonia was
used elsewhere in the manufacture of fertilisers. The facts of that case were
that the appellant was manufacturer of urea - a fertiliser and utilized for
that purpose raw naphtha. The question therein was whether ammonia used in the
off-site plants was also ammonia which is "used elsewhere in the
manufacture of fertilisers". The off-site plants were held to be part of
the process of the manufacture of urea. Relying upon the phraseology used in
the exemption notification, it was held that there was no good reason why the
exemption should be limited to the raw naphatha used for producing urea that is
utilized directly in the urea plant since the notification only required that
the ammonia should be used in the manufacture of fertilisers and not that it
should be used directly in the manufacture of fertilisers. The Court said that
:
"The
exemption notification must be so construed as to give due weight to the
liberal language it uses. The ammonia used in the water treatment, steam
generation and inert gas generation plants, which are a necessary part of the
process of manufacturing urea, must, therefore, be held to be used in the
manufacture of ammonia and the raw naphtha used for the manufacture thereof is
entitled to the duty exemption." The contention of learned Additional
Solicitor General that the aforesaid decision and other decisions referred by
the Tribunal in the impugned order were cases involving sales tax and income
tax and, therefore, the Tribunal should not have relied on those decisions is
without any substance because the real question is that of the principle laid
down by a decision. In view of the liberal language of the provision, Mr. Rohtagi
fairly and very rightly did not seriously dispute that if any of the items
enumerated in explanation 1(a) is used for any purpose mentioned therein for
the manufacture of final products, it would satisfy the test of `Capital
goods'. The main contention of Mr. Rohtagi, however, is that the question
whether an item falls within the definition of `Capital goods' would depend
upon the user it is put to. The submission is that parts of the items in
respect whereof availing of Modvat credit has been allowed by the Tribunal
could not be treated as 'Capital goods' as the manufacturer could not establish
that the entire item was used in the manufacture of final product. To
illustrate his point, Mr. Rohtagi submitted that part of a cable may go into
the machine used by the manufacturer and, thus, may qualify the requirement of
clause 1(a) and, at the same time, another part of the cable which is used only
for lights and fans would not so qualify. We have no difficulty in accepting
the contention of the learned Additional Solicitor General that, under these
circumstances, user will determine whether an item qualifies or not the
requirement of clause 1(a). However, in the present cases this aspect has no
relevance. It was not the case of the revenue at any stage before the
authorities that an item does not satisfy the requirement of `Capital goods'
within the meaning of the Rule on the ground of its user as it now sought to be
urged by the learned counsel. The case of the revenue has all through been that
the items in question per se are not `Capital goods' within the meaning of the
expression as defined in Explanation 1(a). In respect of the cables of which
Mr. Rohtagi gave example, the stand of the revenue before the Tribunal was that
the cables per se cannot be treated as `Capital goods'.
The
stand of the revenue was not as has been projected now by Mr. Rohtagi.
In
this view, the question of directing remand of these matters for fresh decision
by the Tribunal does not arise. On the facts and circumstances of these cases,
therefore, the stand that the items in question are not used for manufacture of
final product cannot be accepted for the reasons aforestated.
We
find no substance in the appeals of the revenue. The same are accordingly
dismissed. The special leave petitions are also disposed of accordingly.
Parties are left to bear their own costs.
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