Full Judgment Text
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CASE NO.:
Appeal (civil) 619-626 of 2000
PETITIONER:
COMMISSIONER OF CENTRAL EXCISE,Coimbator & Ors.
Vs.
RESPONDENT:
Jawahar Mills Ltd. & Ors.
DATE OF JUDGMENT: 27/07/2001
BENCH:
S.P. Bharucha & Y.K. Sabharwal
JUDGMENT:
[With C.A.Nos.590-591, 599, 420, 627, 653, 654, 674, 897-898, 899-900, 901, 819, 818, 799, 8
06, 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]
J U D G M E N T
Y.K.SABHARWAL, J.
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
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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
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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
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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.
[S.P. Bharucha]
[Y.K.Sabharwal]
July 27, 2001