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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