Bombay High Court
Reliance Industries Ltd vs The Union Of India And 2 Ors on 22 August, 2017
Bench: Anoop V. Mohta
dgm 1 judgment-cexa-5-2007.sxw
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
CENTRAL EXCISE APPEAL NO. 5 OF 2007
M/s. Reliance Industries Ltd.
Incorporated under the Companies
Act, 1956 and having its office at
Fosbery Road, Off Reay Road Station (E),
Mumbai 400 033 .... Appellants
vs
1 The Union of India
through the Secretary,
Ministry of Finance,
Department of Revenue,
North Block,
New Delhi 110 001
2 The Customs, Excise and
Service Tax Appellate Tribunal,
3rd, 4th and 5th floor,
Jai Centre, P. D'mello Road,
Masjid Bunder (East),
Mumbai 400 009
3 Commissioner of Central Excise,
Surat I, New Central Excise Bldg.,
Opp. Gandhi Baugh, Chowk Bazar,
Surat - 395 001 .... Respondents
Mr. V. Sridharan, Senior Advocate with Mr. Prakash Shah, Mr. Jas
Sanghavi, Ms. Shilpi Jain i/by PDS Legal for the Appellants.
Ms. P. S. Cardozo, AGP for Respondents.
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CORAM: ANOOP V. MOHTA AND
SMT. ANUJA PRABHUDESSAI, JJ.
CLOSED FOR JUDGMENT ON : July 27, 2017
PRONOUNCED ON : August 22, 2017
JUDGMENT (Per Anoop V. Mohta,J.):
This Appeal by the Assessee is under Section 35G of the
Central Excise Act, 1944. (The Central Excise Act).
Background of the Litigation.
2 The Appellants are, inter alia, engaged in the manufacture
of Vinyl Chloride Monomer (VCM), Poly Vinyl Chloride (PVC), High
Density Polyethylene (HDPE), Mono-Ethylene Glycol (MEG),
Polyester Oriented Yarn (POY), etc. at their integrated manufacturing
unit known as Hazira Manufacturing Complex. The first phase of
the complex commissioned in the year 1991-1992 to generate
power/utility and to manufacture EO, MEG, VCM, PVC and HDPE.
The second phase of the complex started in 1995, to commission the
Polyester Complex (POY & PSF) and continued in full backward
integration with commissioning of the new Polypropylene, Naphtha
Cracker, Purified Terephthalic Acid plants and expansion of existing
phase 1 plants. During the set-up of the Hazira Complex, the
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petitioners purchased number of capital goods. The petitioners
availed modvat credit on such capital goods in terms of Rule 57Q of
the Central Excise Rules, 1944 (for short, the Rules).
3 The Appellants have filed requisite declaration under Rule
57-T declaring their capital goods and final products. On 26.03.1996,
by a show cause notice, the Department proposed to disallow Modvat
credit of Rs.18,58,54,731/- and show cause was issued for penalty
under Rule 173Q(1)(bb) of the Rules. The Appellants resisted the
same. The Assistant Commissioner, by order dated 29.04.1998
denied the Modvat credit of Rs.7,86,65,435/-. The penalty of Rs.
78,67,000/- was imposed. Ultimately the net dispute amount
recorded as Rs. 4,75,53,606/-.
4 The Appellants, therefore, preferred an Appeal before the
Commissioner (Appeals). The Commissioner, by order dated
11.11.1998 again disallowed the Modvat credit of Rs.4,22,15,023/-,
however, dropped the penalty so imposed. The Appellants therefore,
have preferred the Appeal before the Customs, Excise & Gold
(Control) Appellate Tribunal, Mumbai (CEGAT) along with the
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Application for stay.
The relevant law.
5 The learned counsel appearing for the Appellants and the
counsel appearing for the Respondents read and referred the relevant
provisions of the Central Excise Act and the Rules.
6 The Appellants have cited the judgments in support of
their respective contentions and have filed their written submissions.
Rule 57-Q and the definition of "capital goods" which is reproduced
as under:
(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
(emphasis added)
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(a) Indian Copper Corporation Ltd. Vs. Commissioner of Commercial
Tax - 1965 (16) STC 259 (SC) - It has been held that the motor
vehicles, locomotives and cane baskets used during mining operations
and to carry copper concentrate from the mines to factory are "used
in the manufacture of final product". This was in context of Section
8(3)(b) of Central Sales Tax Act, 1956. The Hon'ble Court held that
the expression "goods intended for use in the manufacturing or
processing of goods for sale" may ordinarily include such vehicles as
are intended to be used for removal of processed goods from the
factory to the place of storage.
Motor vehicles, locomotives, crane baskets, parts thereof, etc
used during mining operations and to carry copper concentrate from
the mines to factory, are used in the manufacture of final product.
(b) J.K. Cotton & Spinning Vs. STO - 1965 (16) STC 563 (SC) -
Hon'ble Apex Court examined the question whether the benefit of
Section 8(3)(b) of Central Sales Tax Act, 1956 applied to drawings,
photographic materials and electric lightings, electrical humidifier,
exhaust fans, etc. Section 8(3)(b) provided for levy of concessional
rate of sales tax on items "used in the manufacture of goods for sale".
In this case, the Hon'ble Court held that there is no warrant for
limiting the meaning of the expression "in the manufacture of goods"
to the process of production of goods only. In the opinion of the
Hon'ble Court, the expression "in the manufacture" takes within its
compass, all processes which are directly related to the actual
production. The Hon'ble Court further held that the items in question
fall within the description of goods intended for use as they are
directly related to the actual production of goods and without which
commercial production would be inexpedient must be regarded as
goods intended for use "in the manufacture of goods". The Hon'ble
Court has applied and followed the decision of Indian Copper
Corporation Ltd. in the said decision.
Drawing, designs, photographic material, electrical equipments,
etc are necessary to carry out manufacturing process effectively and
hence, would be regarded as intended for use in the manufacture of
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goods.
(c) Jawahar Mills Ltd. v. CCE, 1999 (108) ELT 47 (T) - Affirmed by
Hon'ble Apex Court at 2001 (132) ELT 3 (SC) - Wires cables, control
panels, etc are necessary to carry out manufacturing business and
hence, will qualify as "capital goods".
(d) Chowgule & Co. Pvt. Ltd. Vs. UOI - 1981 (1) SCC 653 - The
assessee was transporting ore from mine to harbour. The Hon'ble
Apex Court held that the vehicles & barges used for transportation of
ore from mine/riverside to harbour and the equipments used in the
harbour to load the ore was used for the processing of ore for sale.
This decision was also in the context of Section 8(3)(b) of Central
Sales Tax Act, 1956.
(e) Jayswal Neco Ltd. Vs. CCE - 2015-TIOL-70-SC-CX - the
Revenue proposed to deny modvat credit under Rule 57Q of the
Central Excise Rules, 1994 on railway track material on the ground
that railway track is not utilised directly or indirectly for producing or
processing of goods or bringing about any change for manufacture of
final product. Accordingly, the question arose before the Hon'ble
Court was as to in what manner such machines, machinery, plants,
equipment, etc., is to be used for the purpose stated therein. The
Hon'ble Court applied the test laid down in the case of J.K. Cotton
reported at 1965 (16) STC 563 (SC) and held that the railway tracks
are installed not only within the plant, but the main objective and
purpose for which the capital expenditure on laying these railway
tracks is incurred by the appellant is for transporting hot metal in
ladle placed on ladle car from blast furnace to pig casting machine
through ladle car where hot metal is poured into pig casting machine
for manufacture of pig iron. It is clear from the above that the use of
railway tracks inside the plant not only form the process of
manufacturing, but it is inseparable and integral part of the said
process inasmuch as without the aforesaid activity for which railway
tracks are used, there cannot be manufacturing of pig iron.
Accordingly, the Hon'ble Apex Court allowed modvat credit on
railway track material in terms of Rule 57Q.
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Railway tracks used to carry materials are related to the
production of goods and hence, eligible as "Capital Goods".
(f) Aditya Cement vs. UOI, 2008 (221) ELT 362 (Raj.) - Railway
track material used for transportation of coal is an integral part of the
manufacturing process and hence, qualify as "Capital Goods".
Used in the Factory :
(g) Birla Corporation Ltd. Vs. CCE - 2003 (160) ELT 268 (T) -
affirmed by Hon'ble Apex Court at 2005 (186) ELT 266 (SC) - it was
held that the duty paid on spares of ropeway (material handling
equipment) used for the purpose of transporting crushed limestone
from mines to the factory is eligible for modvat credit as capital
goods.
Ropeways used for bringing crushed limestones from mines to
factory are eligible "Capital Goods".
(h) In J.K. Udaipur Udyog Ltd. Vs. CCE - 2002 (147) ELT 996 (T)
affirmed by Hon'ble Apex Court at 2005 (183) ELT A159 (SC), the
Hon'ble Apex Court has held that ropeway used outside the factory
for transferring crushed limestones from the mines to factory is
capital goods and entitled to credit.
Similar view is also taken in the following decisions:
(i) Manikgarh Cement Ltd. Vs. CCE - 2004 (168) ELT 331 (T)
Affirmed by Hon'ble Apex Court at 2005 (190) ELT 7 (SC) - Ropeway
used outside the factory for transferring drushed limestones from the
quarries to factory are entitled to credit as "Capital Goods".
(j) Ambuja Cement Eastern Ltd. Vs. CCE - 2015 (321) ELT 497 (T)
Affirmed by Hon'ble Apex Court at 2015 (321) ELT A197 (SC) - Items
used in mines are eligible capital goods even though not used in the
factory.
(k) CCE Vs. Vikram Cement - 2004 (177) ELT 320 (T) - The issue
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before the Hon'ble CESTAT was whether the modvat credit of the duty
paid on capital goods used in mines away from the factory is
admissible under Rule 57Q. The Hon'ble CESTAT held that capital
goods, which are being used in mines, outside the factory, are not
eligible capital goods for the purpose of Modvat credit. The relevant
portion of the decision is extracted hereunder:
"5. In view of these decisions, there is no substance in the
contention of the respondents that mining area is an integral
part of the factory. Accordingly, capital goods, which are being
used in mines, outside the factory, are not eligible capital goods
for the purpose of Modvat credit. However, in respect of the
conveyor belts, Modvat credit is available to the respondents as
the Revenue has not rebutted their contention that the same is
used exclusively in plant only. We, therefore, reject the appeal
of the Revenue with regard to conveyor belt. We do not find any
substance in respondents' plea about dumper being used to
transport crushed limestone from mining area and it is not used
in their factory. Thus, the respondents are not eligible to avail
Modvat credit of duty paid by them in respect of capital goods,
subject matter of these appeals, except the conveyor belts. We
also agree with the learned Advocate for the respondents that
no penalty is imposable in these matters involving
interpretation of term "capital goods"."
(l) The Hon'ble Supreme Court reversed the aforesaid
decision of CESTAT in Vikram Cement Vs. CCE - 2006 (197) ELT 145
(SC) by holding that if the mines are captive mines so that they
constitute one integrated unit together with the concerned cement
factory, Modvat credit on capital goods will be available to the
assessee.
(m) CCE Vs. J.K. Udaipur Udyog Ltd. - 2004 (171) ELT 289
(SC). Hence, as per the CESTAT, SPM is not used within the factory
and therefore, the same cannot be considered as "Capital Goods".
Mines are not part of the factory. Hence, explosives used in the
mines would not qualify as 'input".
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(n) The correctness of the decision in the case of J.K. Udaipur
Udyog was doubted and referred to a Larger bench of Supreme Court
in Vikram Cement Vs. CCE - 2005 (187) ELT 145 (SC). The Hon'ble
Larger Bench of the Supreme Court in Vikram Cement Vs. CCE - 2006
(194) ELT 3 (SC) expressly overruled the judgment of J.K. Udaipur
Udyog - 2004 (171) ELT 289 (SC).
Explosives in the mines are used for manufacture of final
product and hence, modvat credit cannot be denied even though not
used in the factory.
The relevant portion of the decision is extracted hereunder:
"19. In this background, the question arose in the case of
Commissioner of Central Excise, Jaipur v. J.K. Udaipur Udyog
Limited (supra) whether the explosives used for blasting
purposes in the mines and which had not been used in the
factory premises for production or in relation to the manufacture
of cement could qualify for Cenvat credit.
20. The Court answered the question in the negative and in
Paragraph 9 of the judgment as reported said :-
"The scheme for Modvat and Cenvat Credits being different and
in view of the definition of "input" given in sub-rule (d) of Rule
57AA of the Rules and the omission of a Rule similar to Rule 57J,
the ratio of Jaypee Rewa Cement (supra) can have no application
here".
21. Three reasons were given by the Court for holding that
credit could be taken only on inputs received in the factory of
the manufacturer of the final product. First, the Court held that
the definition of input given in sub-rule (d) of Rule 57AA was
"entirely different from the manner in which the said word had
been expounded in the explanation to Rule 57A of the Modvat
Rules". We cannot agree with this reading of the Section. As we
have said there was only a re-arrangement of the several
provisions of Rule 57B in Rule 57AA. Rule 57AA is in fact more
broad based than Rule 57B.
22. Second, the Court proceeded on the basis that under the
Cenvat scheme there was no provision similar to Rule 57J of the
Modvat scheme. As we have seen, Rule 57J was replaced in
substance by Rule 57AB. This provision was overlooked.
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23. The third reason given by the Court in J.K. Udaipur Udyog
for holding that the Cenvat Scheme was different from the
Modvat scheme was Rule 57AC(1). However, that Rule is limited
to inputs received in the factory of the manufacturer and does
not impinge on Rule 57AB at all.
24. The schemes of Modvat and Cenvat credit are not
therefore, different and we are unable to agree with the
conclusion of the Court in J.K. Udaipur Udyog that the decision in
Jaypee Rewa Cement (supra) would have no application to
Cenvat Rules.
25. In our opinion the doubt expressed by the referring
Bench about the correctness of the decision in CCE v.
J.K. Udaipur Udyog Limited (supra) was well founded.
Having regard to the fact that the Cenvat Rules in
effect substitute the Modvat Rules, the decision in
Jaypee Rewa Cement would continue to apply. The
decision in Commissioner of Central Excise, Jaipur v.
J.K. Udaipur Udyog Limited (supra) holding to the
contrary is, in our opinion, not good law. The reference
is answered accordingly. All the appeals and special
leave petitions will now be listed for being disposed of
in the light of this judgment."
(o) CCE Vs. Indian Seamless Steels & Alloys Ltd. - 2005 (190) ELT 12
(Bom) - the Revenue contended before the Hon'ble Court that
material handling equipment are not used in the manufacture of final
product nor used for carrying out any process and bringing about
change in the final product and hence, not covered under the purview
of Rule 57Q of Central Excise Rules, 1944. The Hon'ble Court applied
and followed the decision of CCE Vs. Jawahar Mills Ltd. - 2001 (132)
ELT 3 (SC) and held that user test is the only test required to be
satisfied. Assimilation of or actual consumption of capital goods into
final product is not warranted under Rule 57Q. Revenue's contention
was therefore rejected.
Pipes and tubes used to carry water within the plant qualify as
"Capital Goods".
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(p) Jaypee Rewa Cement v. CCE, 2001 (133) ELT 3 (SC) - Explosives
in the mines are used for the manufacture of final product and hence,
entitled for modvat credit even though used outside the factory.
(q) J. K. Udaipur Udyog Ltd v. CCE, 2002 (147) ELT 996 (Tri. Del) -
Affired by supreme Court at 2005 (183) ELT A159 (SC) - Ropeway
used outside the factory for transferring crushed limestones from the
mines to factory are entitled to credit as "Capital Goods".
(r) K. C.P. Ltd v. CCE, 2005 (183) ELT 403 (T) - Affirmed by High
Court at 2015 (330) ELT 66 (AP). - Ropeway used outside the factory
for transferring crushed limestones from the mines to factory are
entitled to credit as "Capital Goods".
(s) CCE vs. Pepsico India Holdings Ltd., 2001 (130) ELT 193 (T) -
Pipelines used for delivering water from the reservoir to the factory
would be treated as used in the factory.
(t) Finolex Industries Ltd. v. CCE , 2003(156) ELT 96 (T) - Cranes
used for unloading goods from sea at jetty are treated as used in the
factory.
7 Respondents resisted the case of the Appellants and filed
written submissions. The Supreme Court judgment in Madras
Cements Limited vs. Commissioner of Central Excise, (2010) 6 SCC 606
is cited in support of the impugned order and further saying that
onus is on the assessee to seek Modvat credit entitlement and,
therefore, required to identify machinery capital goods, eligible for
Modvat credit. The burden is heavily upon them to prove that such
capital goods had been used in components, spare parts, accessories
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for manufacture of the finished product. Reliance is also placed on
Saraswati Sugar Mills v. Commissioner of Central Excise, Delhi-III,
(2014) 15 SCC 625 referring to Rule 57Q and the concept
"component part" to be eligible for availing of Modvat credit.
The factual aspects of the Appellants' "capital goods"
8 The petitioners imported the complete "Single Point
Mooring system" along with anchor chain, chain stoppers, anchor
piles & anchor pipes and other items such as offshore bands, half shell
brackets, anode pipes etc. SPM system was classified under CSH
98.01 as item of machinery at the time of import.
9 The Single Point Mooring (SPM) buoy is located in Mid
Sea (Arabian Sea), Off. Suvali Coast, in Magdalla Port territorial
water, at a distance of approx 12 kms from tank farm. SPM is a
floating platform, held in place by 6 sets of suitable mooring chains
which in turn are either connected to a pile or an anchor. SPM holds
a vessel through a mooring hawser. SPM has an arrangement of
inbuilt pipeline system with its entry/exit points, where subsea and
floating hoses connect to facilitate the transfer of cargo between the
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vessel and the terminal. The floating hoses are connected to the
vessel's manifold. Vessel pump the cargo through these hoses.
10 The subsea hoses are connected to a hard pipe lines at the
bottom of the sea. This hard pipe is in turn connected to the tank
farms located within the factory premises of the petitioners.
Accordingly, SPM is connected to the tank farm through 2 pipelines.
One pipeline is used for transporting Naphtha & other petroleum
products from SPM to the tank farm. The second line is used to
transport Paraxylene from SPM to the tank farm. These pipelines run
underwater on the sea bed for about 4.85 kms & are then buried
underground for another 7.15 kms to reach the petitioners' tank farm.
SPM is used for unloading of imported and coastal consignments and
pumping the raw materials namely Naptha, Paraxylene and other
petroleum products through the pipe lines directly to the tanks within
the factory.
11 It is an undisputed fact that part of the pipelines and SPM
are integrally connected with the equipments and tanks within the
factory through the pipelines and instrumentation. It is necessary to
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run the refinery of the size in question without installation of SPM
used in connection with the import of crude by giant crude tankers.
SPM and all connected and related items - "capital goods" used &
usable.
12 The concept and the definition of "capital goods" has been
elaborated in many cases and specifically the expression "used in the
manufacture" and/or " used in the manufacture of goods". In view of
above position of facts and law, we have noted that both the
Authorities, including CESTAT have recorded that SPM system is used
by the Appellants in pumping raw material through the pipeline
directly to the tanks. This mooring system is the part of the
Offshore Terminal located off-Suvali Coast. This system performs the
function of facilitating the berthing of ocean going vessels (carrying
fed stock for Cracker Plant) for pumping the raw material through the
pipelines directly to the tanks. The anchor piles and chain stoppers
hold the mooring system afloat. The function of the item is to
facilitate berthing of the vessel. The law materials namely Naptha,
Paraxylene and other petroleum products were pumped through SPM
to various plants for consumption. There is no issue further that this
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pipelines run underwater on the sea bed for about 4.85 kms & are
then buried underground for another 7.15 km to reach the RIL tank
farm. These pipelines are then connected to the tank farm through
metering stations no. 2 & 3 from where additional pipelines are laid
to divert the material to various tanks. Admittedly, the SPM buoy is
located in Posn. Latitude 21 Deg 08 min 56.508 sec N, Longitude
072deg 34 min 25.943 sec E in Gulf of Khambat at a distance of
approx. 5 kms from Suvali and about 12 kms from tank farm. These
tank farms are located within the factory premises and are part of the
ground plan submitted to the Central Excise department for
registration. The Appellants build a jetty for loading and unloading
operation of raw material and final products. Huge amount is
invested in the Hazira Complex. Various capital goods on which they
avail capital goods have been purchased for this mechanism. The
Appellants imported a complete Single Point Mooring system along
with anchor chain, chain stoppers, anchor piles and anchor pipes and
other related items such as offshore bands, half shell brackets, node
pipes etc parts thereof. The Bill of Entries and SPM system,
machinery falls under the ambit of 98.01 heading. All in all, this is
a complete single point mooring (SPM) including anchor pipelines,
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chain stoppers, anchor piles. All are integrated part and parcel of
the whole mechanism. Every component, machinery used and usable
being integrated part for the purpose of producing a final product.
13 The submission that SPM system is not used for producing
or processing of any goods or its is not integral part for bringing any
changes in substance for the manufacture of final products, as
contended by the Respondents, is unacceptable position in view of
above.
14 There is no claim that SPM system is used for producing
or processing of any goods directly, but it is specific case that it is
integral part of system being a part of the offshore terminal located
off Suvali coast. Admittedly, this system performed the function of
facilitating the berthing of ocean going vessels for pumping the raw
material through the pipelines directly to the tanks. The anchor piles
and chain stoppers hold the mooring system afloat. There is no issue
that the same holds goods in respect of the offshore bends, half shell
brackets, anode pipe NPS offshore line pipe, ERW steel pipes.
Therefore, the submission that SPN is independent and distinct
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function of its own, in the facts and circumstances and in view of the
law so mentioned about, cannot be stated to be only an extension of
machinery situated in the factory. In our view, this part/machinery
falls within the ambit of "capital goods" being admitted and
integrated part of and falls within the ambit of machinery, equipment,
apparatus, tool of appliances, used for producing or processing of any
or for bringing about change any substance in the manufacture of the
final product. SPM independently cannot bring about in any change
in substance for the manufacture of the final product. The crux is, in
view of above, that it is integrated and connected part of whole of
machinery/plaint/equipment falls within the ambit of "capital goods".
15 This is in the background that the Authorities themselves
have given the benefit of other "capital goods" like wires, cables,
pipes, tubes etc. Therefore, for the same reason, according to us, this
SPM system and connected apparatus, equipments also meet the
parameters of definition of "capital goods" under Rule 57Q of the Act.
16 We have to consider the technology and machinery which
are available for bringing the raw material for final product/produce.
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This may be of any nature, including transportation and/or such
other mechanism. SPM system as noted, is regularly used for supply
of so-called raw material which ultimately, leads to the factory and
products are finally processed and produced that resulted into final
products. We are inclined to observe that SPM system in question for
the reason so recorded falls within the ambit of "capital goods" in the
form of components, spares and accessories as re-iterated in Madras
Cements vs. Commissioner of Central Excise (supra).
17 The Appellants, in the present case, is not claiming that
items used in making those SPM system to manufacture it. The
scheme is that SPM system and its integrated part which is on going
mechanism supported by the spares and accessories. Therefore, the
Supreme Court judgment in Saraswati Sugar Mills vs. Commissioner of
Central Excise, Delhi-III1, cannot be extended to deny the claim of the
Appellants. The case of M/s. Bharati Airtel Limited is also not
applicable in the facts and circumstances of the case, as in the present
case actual SPM system is in use and required to be used for specific
purpose so referred above. This is keeping in mind, the nature of
1 (2014) 15 SCC 625
dgm 19 judgment-cexa-5-2007.sxw
business and final product produced/processed after obtaining this
raw material through SPM system.
18 We have also noted that the Authority while passing the
impugned order has relied upon a judgment which is overruled (2004
(171) ELT 289 (SC).
19 The Apex Court in Jayaswal Neco Limited vs. Commissioner
of Central Excise, Raipur2, while considering the same provisions and
the concept of "capital goods" defined under the Act and the Rules
elaborated as under:
"7 It is clear from the reading of the definition of
capital goods that when machines, machinery, plants,
equipment, etc., are used for producing or processing
any goods or bringing about any change in any
substance for the manufacture of final product, it
would qualify as 'capital goods' and MODVAT credit
thereon would be permissible. The question that arises
for consideration is as to in what manner such
machines, machinery, plants, equipment, etc., are to be
used for the purpose stated therein.
8 A direct answer to this question is given by this
Court in 'M/s. J.K. Cotton Spinning and Weaving Mills
Co. Ltd. v. Sales Tax Officer, Kanpur and Anr.' : 1965 (1)
2 (2015) 11 SCC 568
dgm 20 judgment-cexa-5-2007.sxw
SCR 900]. In this case, the test which was enunciated
by the Court is:
"8 Where any particular process is so integrally
connected with the ultimate production of goods that
but for that process, manufacture or processing of
goods would be impossible or commercially
inexpedient, goods required in that process would fall
within the expression "in the manufacture of goods".
"7 .... For goods to answer that description, it is
not necessary that they must of necessity be goods
which are used as "ingredient or commodity in the
creation of goods", or which are "directly and actually
needed for turning out or making of the goods." (AIR
p. 1312, para 7)
15 The aforesaid process squarely meets the test laid
down by this Court in M/s. J.K. Cotton Spinning &
Weaving Mills Co. Ltd.'s case. [ AIR 1965 SC 1310:
(1965) 1 SCR 900. It is clear that the railway tracks
are installed not only within the plant, but the main
objective and purpose for which the capital
expenditure on laying these railway tracks is incurred
by the Appellant is for transporting hot metal in ladle
placed on ladle car from blast furnace to pig casting
machine through ladle car where hot metal is poured
into pig casting machine for manufacture of pig iron. It
is clear from the above that the use of railway tracks
inside the plant not only form the process of
manufacturing, but it is inseparable and integral part
of the said process inasmuch as without the aforesaid
activity for which railway tracks are used, there cannot
be manufacturing of pig iron.
16 We find from the order of the Commissioner that
in spite of taking note of the aforesaid use of the
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railway tracks and accepting the same as correct, the
Commissioner denied the relief to the Appellant on an
extraneous ground, i.e., railway tracks were used for
other purposes as well, namely, apart from conveying
hot metal and hot pigs, it was used for carrying raw
materials and finished goods as well. This can hardly
be a ground to deny the relief inasmuch as by
incidental use of the railway tracks for some other
innocuous purpose, it does not lose the character of
being an integral part of the manufacturing process.
The Commissioner has further observed in his order
that the railway track is not utilised directly or
indirectly for producing or processing of goods or
bringing about any change for manufacture of final
product. This conclusion, obviously, is completely
erroneous and amounts to misreading of the process.
Such an error has occurred because the Commissioner
did not keep in mind the principle of law laid down by
this Court in M/s. J.K. Cotton Spinning & Weaving Mills
Co. Ltd.'s case, [AIR 1965 SC 1310: (1965) 1 SCR 900]
highlighted above."
20 In Vikram Cements vs. CCE, 2006 (194) ELT 3 (SC)
(supra), the Supreme Court has specifically held that explosives in the
mines are used for manufacture of final products and hence modvat
credit cannot be denied even though not used in the factory. The
impugned order, therefore, based upon the overruled judgment (CCE
(supra) required to be set aside on this ground also as this case goes
to the root of reasoning given by the learned Authority while rejecting
the claim of the Appellant.
dgm 22 judgment-cexa-5-2007.sxw
Conclusion:
21 SPM system is of no use, if not connected to the other
equipment, machineries for bringing in the raw material as done in
the present case. SPM is integrated and integral part though situated
outside the factory, but useful and helpful to produce final products.
SPM where liquid cargo is discharged from a tanker, is an extension
of a factory for the purposes of "capital goods" in question. The
Appellate Authority/Tribunal, failed to take note of the judgments
cited by the Appellants and so recorded in the above paragraph in
this matter. We are of the view, keeping in mind the facts and
circumstances and the judgments so referred above, that Appellants
case fall within the ambit of "capital goods" and, therefore, entitled
for the benefit so claimed. We are inclined to observe that the
expression "used in the manufacture of goods" take within its ambit
in integral process and equipments connected with its ultimate
production of goods. The material, equipments, in question are
integral part of the manufacturing process and hence falls within the
ambit of "capital goods". Merely because SPM system is not
specifically within the factory, but it is outside the factory, still
required to be treated as "capital goods" used for
dgm 23 judgment-cexa-5-2007.sxw
manufacturing of final products, in the facts and circumstances of
the case. Hence the Order:
ORDER
(i) In view of above, we are inclined to answer the following
question of law in negative :
"a) Whether in the facts and circumstances of the
case CESTAT was correct in denying the credit on SPM
system under Rule 57Q of the Central Excise Rules,
1944?"
We answer the question in favour of the Appellants and against
the Respondents.
(ii) The Appeal is allowed.
(iii) There shall be no order as to costs.
(ANUJA PRABHUDESSAI, J.) (ANOOP V. MOHTA, J.)
