Allahabad High Court
M/S Eminent Cable Network Pvt. ... vs State Of U.P. And 2 Ors. on 17 October, 2014
Bench: Tarun Agarwala, Satish Chandra
HIGH COURT OF JUDICATURE AT ALLAHABAD
AFR
RESERVED
Central Excise Appeal No.234 of 2005
M/s Daya Sugar.
Vs.
Commissioner, Central Excise, Meerut-1
***
Hon'ble Tarun Agarwala, J.
Hon'ble Dr. Satish Chandra, J.
(Per: Tarun Agarwala,J.)
The appellant is a unit of M/s Daya Engineering (Sleeper) Ltd. Naya Bans, Gagalheri, District Saharanpur and is engaged in the manufacture of sugar and molasses falling under Chapter sub-heading No.1701.31, 1701.39 and 1703.10 of the Central Excise Tariff Act, 1985. The appellant was availing MODVAT credit on the capital goods under the erstwhile Rule 57-Q of the Central Excise Rules and filed a declaration under Rule 57-T of the Rules for availing credit on various capital goods.
During the course of scrutiny, for the period March, 2000 to November, 2000, it was observed that the appellant had wrongly taken a credit of Rs.9,63,016/- on various items under Rule 57-Q of the Central Excise Rules, 1944 (hereinafter referred to as the "Rules"). It was found that the MODVAT credit was taken on various items such as plates, sections, columns, staging material etc. which were not used in the manufacture of specified goods. The appellant had availed MODVAT credit on the basis of suppliers invoices for the items under Chapter 84 which were duly mentioned in the invoices in respect of the supplies of parts used for capital goods. It was alleged that these goods were used in the manufacture of specified goods in the factory of the appellant. The goods so received such as plates, sections, sheets, staging material, etc. were used in the factory of the appellant for the purpose of constructing platforms for the use of running of machinery, for supporting equipments used in the factory.
Based on the scrutiny, the Deputy Commissioner, Central Excise, Saharanpur issued a show cause notice to the appellant to show cause as to why the MODVAT credit availed by the appellant on the items such as plates, sections, columns, staging material, etc. under Rule 57-Q of the Rules should not be disallowed contending therein that these items cannot be termed as "components, spares or accessories in the light of the definition of "Capital Goods".
The appellant submitted a detailed reply. The Deputy Commissioner, after considering the reply, passed an order dated 20.9.2002 accepting the contention of the appellant holding that the appellant had correctly availed MODVAT and, accordingly, dropped the proceeding. The Department, being aggrieved by the order, filed an appeal before the Commissioner (Appeals), which was partly allowed. The appellate authority agreed with the contention of the appellant that the MODVAT credit was available on the purchase of plates, sections, columns, staging materials, etc. under Rule 57-Q of the Rules as capital goods. Being aggrieved by the said order, the Department filed a Second Appeal before the Customs Excise and Service Appellate Tribunal. The Tribunal by its order dated 25.7.2005 allowed the appeal of the Department holding that the appellant was not entitled to avail MODVAT credit. The appellant, being aggrieved by the order of the Tribunal, has filed the present Appeal under Section 35-G of the Central Excise Act.
We have heard Sri Nikhil Agarwal along with Sri Parv Agarwal, the learned counsel for the appellant and Sri B.K.S.Raghuvanshi, the learned counsel for the Department.
The learned counsel contended, that the goods received by the appellant, namely, plates, sections, sheets, steel castings, staging material, checkered plates etc. were capital goods and would come under the term plants and machinery and, consequently, the appellant was entitled to avail MODVAT credit under the erstwhile Rule 57-Q of the Rules. In support of his submission the learned counsel placed reliance upon a decision of the Supreme Court in Commissioner of Central Excise, Jaipur vs. Rajasthan Spinning & Weaving Mills Ltd., 2010(255) ELT 481 as well as a decision of the Supreme Court in Commissioner of Central Excise, Coimbatore and others vs. Jawahar Mills Ltd. and others, (2001) 6 SCC 274.
The learned counsel further contended that the supplier of the goods had mentioned the description of the item, which had been classified under Chapter 84 and that these goods were eligible for capital goods being classified under Chapter 84. The learned counsel contended, that when the classification of the goods has not been challenged at the manufacturer's end and the authority to classify the goods is vested with the officer having the jurisdiction over the manufacturer and not with the officer having jurisdiction over the user of the goods, consequently, the goods classifiable under Chapter 84, being capital goods, the appellant was eligible to claim MODVAT under Rule 57-Q of the Rules. In support of the submission, the learned counsel placed reliance upon a decision of the Supreme Court in Sarvesh Refractories (P) Ltd. vs. Commissioner of Central Excise & Customs, 2007 (218) E.L.T. 488 (S.C.) as well as a decision of the Madras High Court in Commissioner of Central Excise Pondicherry vs. Mohan Breweries & Distilleries Ltd., 2010 (259) E.L.T. 176 (Mad.).
On the other hand, Sri B.K.S.Raghuvanshi, the learned counsel for the Department contended that Rule 57-Q of the Rules only provides for taking credit of Central Excise Duty paid on capital goods, which are used by the manufacturer in the manufacture of specified goods. It was contended that the goods specified as capital goods has been annexed in the table annexed to the Rule and, therefore, the benefit of credit of duty could only be extended to those capital goods which found place in the said table. The learned counsel contended that from a perusal of the table annexed to Rule 57-Q of the Rules, clearly showed that items falling under Chapters 82, 84, 85 and 90 excluding the Chapter Heading, which were not termed as a capital good and components, spares and accessories of the goods of chapter mentioned at Sl. Nos.1 to 4, i.e., Chapters 82, 84, 85, and 90 could only be considered as capital goods, irrespective of the fact that the said components spares or accessory falls in another chapter heading. The learned counsel contended that the parties had purchased plates, sections, sheets staging material etc. are items which falls under Chapter 72 or 73 and, therefore, are not capital goods. The learned counsel contended that the appellant with the connivance of the suppliers had opted a modus operandi to get the benefit of MODVAT by way of classifying the items under Chapter 72, 73 into items of 84, in view of the fact, that the items covered under Chapter 72 or 73 are not covered under the purview of MODVAT scheme.
In the light of the contention raised by the learned counsel for the parties, it is necessary to consider the provision of Rule 57-Q of the Rules as it existed then at the relevant moment of time under the Central Excise Rules, 1944. For facility, the said provision is extracted under under:
"57Q. Applicability. - (1) The provisions of this section shall apply to goods (hereafter in this section, referred to as the"final products") described in column (3) of the Table given below and to the goods (hereafter, in this section, referred to as "capital goods"), described in the corresponding entry in column (2) of the said Table, used in the factory of the manufacturer of final products.
TABLE
Sl.
No.
Description of capital goods falling within the Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) and used in the factory of the manufacturer
Description of final products
All goods falling under heading Nos. 82.02 to 82.11;
All goods specified in the Schedule to the Central Excise Tariff Act, 1985 (5 of 1986), other than the following, namely:-
(i) all goods falling under Chapter 24; and
(ii) all goods falling under heading Nos. 36.05 or 37.06.
(iii) ingots and billets of non-alloy steel falling under sub-heading Nos.7206.90 and 7207.90, manufactgured in an induction furnace unit, whether or not any other goods are produced in such induction furnace, and hot re-rolled products of non-alloy steel falling under sub-heading Nos.7211.11, 7211.19, 7211.30, 7211.52, 7211.59, 7211.60, 7211.92, 7211.99, 7213.90, 7214.90, 7215.90, 7216.10 and 7216.90 on which duty is paid under section 3A of the Central Excise Act, 1944 (1 of 1944).]
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
All goods falling under chapter 84 (other than internal combustion engines falling under heading No.84.07 or 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 airconditioning 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, 84.40, 84.50, 84.52, 84.69 to 84.73, 84.76, 84.78, expansion valves and solenoid valves falling under sub- heading Nos.8481.10 of a kind used for refrigerating and airconditioning appliances and machinery.
All goods falling under chapter 85 (other than those falling under heading Nos.85.09 to 85.13, 85.16 to 85.31, 85.39 and 85.40);
All goods falling under heading Nos.90.11 to 90.13, 90.16, 90.17, 90.22 (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);
Components, spares and accessories of the goods specified against S. Nos.1 to 4 above;
Moulds and dies;
Refractories and refractory materials;
Tubes and pipes and fittings thereof, used in the factory;
Pollution control equipment;
Grinding wheels and the like goods falling under sub-heading No.6801.10;
Goods falling under heading No.68.02; and
Lubricating oils, greases, cutting oils and coolants.
(2)(i) The manufacturer of the final products shall be allowed credit of the duty of excise or the additional duty leviable under section 3 of the Customs Tariff Act, 1975 (5 of 1975) (hereinafter referred to as "specified duty") paid on the capital goods.
(ii) The manufacturer availing of the credit may utilise the same for payment of duty of excise payable on the final products manufactured in his factory.
(3) Notwithstanding anything contained in sub-rule (1), the manufacturer of the final products shall be allowed credit of additional duty leviable under section 3 of the Customs Tariff Act, 1975 (51 of 1975) on goods falling under Chapter heading No.98.01 of the first schedule to the said Customs Tariff Act, to the extent of 75% of the said additional duty paid on such goods.
(4) A manufacturer of the final products purchasing capital goods from a unit situated in a Free Trade Zone or from a hundred per cent. export-oriented undertaking or from a unit in an Electronic Hardware Technology Park or Software Technology Parks and using them in the manufacture of final products, shall be allowed to take the credit of the specified duty paid on such capital goods only 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.
(5) The credit of the specified duty on capital goods (other than those capital goods in respect of which credit of duty was allowable under any other rule or notification prior to the 1st day of March, 1997) shall not be allowed if such capital goods were received in the factory before the 1st day of March, 1997.
(6) A manufacturer shall be allowed credit of specified duty paid on capital goods manufactured by him for the manufacture of final products in his factory.
(7) The credit of the specified duty on capital goods [other than those capital goods covered under S.No. 5, 7, 10, 11 and 12 of column (2) of the Table below sub-rule (1)] and received in the factory on or after the 1st day of January, 1996, shall not be taken on a date prior to the date on which such capital goods are installed or, as the case may be, used for manufacture of excisable goods, in the factory of the manufacturer as certified by such manufacturer or a person designated by him for this purpose.
(8) Notwithstanding anything contained in sub-rule (7), a manufacturer intending to remove the capital goods from his factory for home consumption or for export, prior to their being installed or used, as the case may be, shall be allowed to take credit on the date on which such capital goods are so removed by him from his factory on payment of the appropriate duty of excise leviable thereon as provided in rule 57S."
A perusal of the aforesaid Rule 57-Q of the Rules indicates, that it provides for taking a credit of Central Excise Duty paid on capital goods used by a manufacturer in the manufacture of specified goods. Even though capital goods have not been defined, the goods specified as capital goods have been given in the table annexed to Rule 57-Q of the Rules. Therefore, the benefit of credit of duty could only be extended to those capital goods, which finds place in the said table.
A perusal of the table annexed to Rule 57-Q of the Rules indicates that items falling under Chapters 82, 84, 85 and 90 can also be considered as capital goods irrespective of the fact that the said components, spares or accessories falls in another Chapter Heading and benefit of credit of duty on the same could be extended under Rule 57-Q of the Rules.
The invoices reveal that the appellant had purchased checkered plates, packing plates, sheets, sections, staging materials, which were classified by the supplier as items falling under Chapter 84 as sugar mill machinery parts. To be more precise, the description of the items mentioned by the supplier was "boiler house internal stagging" "fabricated parts of plants for sugar milter", "fabricated parts for modification of Donnelley Chute", "fabricated parts of boiler house", " fabricated parts of caustic soda tank". These items are appropriately classifiable either under Chapter 72 as checkered plates, sections, etc. or under Chapter 73 as stagging material, if subjected to various processes, which go to the erection of shed and erected structures. The appellant admits that these plates, sheets, sections, etc. were used in the factory for the purpose of constructing platform for use of the running of machinery. By no stretch of imagination these items could be considered as sugar mill machinery or its components, spares or accessories classifiable under Chapter Heading 84. These items are not capital goods given against Sl.Nos.1 to 4 nor are components, spares and accessories, which are used as capital goods of Sl. Nos.1 to 4 of the table annexed to Rule 57-Q of the Rules. It is quite evident that the goods received by the appellant was used for construction of a platform which are used by mechanics for checking the running of the machines or used for supporting the equipments. The goods in question that has been used is only for the purpose of raising civil structures and, consequently, cannot be termed as capital goods under Rule 57-Q of the Rules.
The decision of the Supreme Court in Rajasthan Spinning & Weaving Mills Ltd. (supra) is distinguishable as in that case the Supreme Court after applying the user test found that the steel plates and MS channels was used for the fabrication of Chimney which would fall within the ambit of capital goods, under Rule 57-Q of the Rules for the reason that the Chimney was an integral part of the diesel generating set particularly when the Pollution Control Laws made it mandatory that all plants which emits effluents has to be equipped with an apparatus that could reduce or get rid of the effluent gasses. The Supreme Court held, that the Chimney constructed for the purpose of reducing the effluent gases was to be treated as an accessory under Rule 57-Q of the Rules. Similarly, in Jawahar Mills Ltd. (supra) the Supreme Court held that the definition of capital goods was very wide and in view of the liberal language of the provision it was required to be found out as to whether an item falls within the definition of capital goods would depend upon the user which is put to. If the goods are not used for manufacture of a final product or is not used as an input, then it would not come under the purview of capital goods.
In the light of the aforesaid, we are of the opinion, that the goods used by the appellant was for manufacture of a platform, which was used for raising a civil structure and by no stretch of imagination, could it be considered as a sugar mill machinery or a plant or component, spares or accessories classifiable under Chapter Heading 84. We are of the opinion, that these items cannot be specified as capital goods under Rule 57-Q of the Rules and, consequently, we hold that the appellant had wrongly availed the credit of Rs.9,84,066/-.
The decision of the Supreme Court in Sarvesh Refractories and Mohan Breweries are not at all applicable. In these decisions, the classification of the item was changed, and in that context, the Court held, that once an item, which had been classified by the manufacturer supplying the material, the said classification cannot be changed by the assessee receiving the goods. In the instant case a specific finding has been given that the supplier of these items had wrongly classified them under Chapter 84 as sugar mills machinery parts, whereas the goods so received by the appellant were used for construction of a platform and were not used anywhere as a part of the machinery. Consequently, the said decisions are not applicable.
For the reasons stated aforesaid, the appeal fails and is dismissed.
Dated:17.10.2014.
AKJ.
(Dr. Satish Chandra, J.) (Tarun Agarwala, J.)
