The Commissioner of Custom and Central Excise, Meerut – II Vs M/s India Glycols Ltd. on 27 June, 2008

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IN THE HIGH COURT OF UTTARAKHAND AT NAINITAL

Central Excise Appeal No. 04 of 2006

The Commissioner of Custom and Central Excise, Meerut – II.

……………. Appellant

Versus

M/s India Glycols Ltd.

Bazpur Road, Kashipur,

District Udham Singh Nagar.

……………. Respondent

Coram : Hon’ble Prafulla C. Pant, J.

Hon’ble Dharam Veer, J.

Hon. Prafulla C. Pant, J. (oral)

This appeal, preferred under Section 35-G of the Central Excise Act, 1944, is directed against the order dated 27.09.2005, passed by the Customs, Excise and Service Tax Appellate Tribunal, New Delhi (hereinafter referred as CESTAT) in Appeal No. E / 2782 / 03 –NB(S), whereby the appeal of the revenue (present appellant) was partly allowed.

2) Heard learned counsel for the parties.

3) Brief facts of the case are that respondent M/s India Glycols Ltd. are manufacturer of Glycol and other industrial chemicals. During the period 1994-95 (upto Feb 1995) they availed Modvat credit to the tune of Rs. 14,73,523/- towards duty paid on various goods claimed to be covered within the ambit of ‘capital goods’. A show cause notice dated 08.03.1995, disallowing said credit was issued under Rule 57Q of the Central Excise Rules, 1944, by the department to the respondent (assessee), and after considering the reply of the assessee, the adjudicating authority vide its order dated 20th April 1999, allowed the credit to the tune of Rs. 6,91,952.92, whereas credit to the extent of Rs. 7,54,842.98 was disallowed. On this respondent (assessee) preferred appeal against said order before the Commissioner (Appeals), Meerut. The item in respect of which the Commissioner (Appeals) allowed the Modvat credit included the items (i) Laboratory Homogenizes, Lab Scientific / Hospital Equipments (ii) Module of Chapter Heading No. 85.38 (iii) Gas Detection Systems of Chapter Heading No. 85.31 (iv) Lube / Sealant of Chapter heading No. 32.14 (v) Tower Packing of Chapter Heading No. 84.19 and (vi) Safety Tools of Chapter Heading No. 82.05. It appears that the definition of ‘Capital goods’ which was provided in original Rule 57Q of Central Excise Rules, 1944, was amended by the Notification No. 11 / 95– CE(NT) dated 16.03.1995, whereby the clause (d) and clause (e) were inserted.

Aggrieved by the order dated 30th June 2003, passed by Commissioner (Appeals), the Revenue (present appellant) appears to have preferred the Appeal No. E / 2782 –03 / NB(S) before the CESTAT, and after hearing the parties, the said appeal was disposed of vide impugned order dated 27.09.2005, whereby except for the safety tools (mentioned at Sl. No. (vi) above with Heading No. 82.05), the exemptions allowed by the Commissioner (Appeals) in respect of the rest of the five items claimed under definition of ‘Capital goods’ were affirmed.

4) The question of law raised before this Court is whether, the CESTAT has erred in law in applying the Notification No. 11 / 95 –CE(NT) dated 16.03.1995, retrospectively for the year 1994 – 95, and in affirming the exemption granted by the Commissioner (Appeals) in respect of the laboratory homogenizes, lab scientific / hospital equipments; module of chapter heading No. 85.38; gas detection systems of chapter heading No. 85.31; lube / sealant of chapter heading No. 32.14; tower packing of chapter heading No. 84.19?

5) Mr. Arvind Vashistha, learned Standing Counsel for the appellant argued that the CESTAT has erred in law in affirming the exemption of the aforesaid items as ‘Capital goods’ for the period of 1994 –95 (upto Feb 1995) i.e.

before the definition of ‘Capital goods’ was amended vide Notification No. 11 / 95 –CE(NT) dated 16.03.1995.

6) Before further discussion, it is pertinent to mention here, the definition of ‘capital goods’ as it existed before 16.03.1995 in Rule 57Q of the Central Excise Rules, 1944.

The same is reproduced, as under:

57Q – Applicability:

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 weighbridges used in the factory of the manufacturer.

“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.

ANNEXURE

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, 56, 57, 58, 60, 61, 62 or 63;

(ii) All goods falling under heading Nos. 36.05, 37.06, 50.02, 50.03, 51.01, 51.02, 51.04, 51.06, 51.07, 51.08, 52.01, 52.02, 52.05 to 52.12, 53.02, 53.05 to 53.08, 54.08 to 54.12 and 55.07 to 55.12; (iii) All goods falling under sub-hearing Nos. 5001.10, 5301.10, 5301.20, 5301.90, 5303.10, 5303.20 and 5303.90.”

The aforesaid definition was amended vide Notification dated 16.03.1995, and clause (d) and clause (e) were added to the existing definition of ‘capital goods’. The same are reproduced, hereunder:

“(d) Following goods falling within the Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) and used in the factory of the manufacturer.

(i) All goods falling under heading Nos. 84.02, 84.05, 84.06, 84.11, 84.12, 84.16, 84.17, 84.19, 84.21, 84.23, 84.25 to 84.28, 84.80, 85.05, 85.35, 90.11, 90.12, 90.13, 90.16, 90.17 and 90.24 to 90.31;

(ii) Auxiliary plants falling under heading No. 84.04 for use with boilers of heading No. 84.02;

(iii) I.C. engines (other than engines of motor vehicle) falling under heading No. 84.07 or 84.08;

(iv) Compressors (other than of a kind used for refrigerating and air-conditioning applications) falling under heading No. 84.14; 6

(v) Electric generating sets (of output exceeding 75 KVA) falling under heading No. 85.02; (vi) Transformers (of power handling capacity exceeding 75 KVA) falling under heading No. 85.04;

(vii) Goods (other than for medical use) of heading No. 90.22;

(viii) Goods (other than of a kind used for refrigerating and air-conditioning applications) falling under heading Nos. 84.81 and 90.32;

(ix) Components, spares and accessories of the goods specified against item (i) to (viii) above; (x) Refractories falling within Chapter 69; (e) Goods specified in the Table in the notification of the Government of India in the Ministry of Finance (Department of Revenue) No. 68/89Customs, dated the 1st March, 1989, and used in the factory of manufacturer.”

7) Learned counsel for the appellant contended that since the amended definition is a prospective one, as such, its retrospective application made by the Commissioner (Appeals) and CESTAT, is erroneous in law. And, on its basis it is argued that the Modvat credit to the tune of Rs. 58,179/- on the items, namely laboratory homogenizes, lab scientific / hospital equipments and gas detection systems, which was admittedly used by the assessee for research and development activity, is erroneous.

8) In reply to this, learned counsel for the respondent (assessee) drew attention of this Court to the principle of law laid down in Commissioner of Central Excise, Coimbatore Vs. Jawahar Mills Ltd.; 2001 (132) E.L.T. 3 (S.C.), and argued that since the definition of expression ‘Capital goods’ was liberal even prior to the Notification dated 16.03.1995, and as such, by adding clause (d) and clause (e) in Rule 57Q, practically and substantially it did not change the definition of the expression ‘Capital goods’.

We have gone through the aforesaid case law. Para 4 of aforesaid case reads as under:

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 view of the above observations of the Apex court while interpreting the expression ‘Capital goods’ defined in Rule 57Q for the period prior to 1994-95 makes it abundantly clear that by adding clause (d) and clause (e) vide amendment dated 16.03.1995, practically the situation did not change as under clause (a) of Rule 57Q, definition of capital goods remained liberal, as it included machine, 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 product. Similar view was taken by the Madras High Court in Siv Industries Ltd Vs. Commissioner of Central Excise, Coimbatore; 2001 (129) E.L.T. 48 (Mad.).

9) Having gone through the Notification No. 4 / 94 –CE dated 01.03.1994, by which Rule 57Q was introduced; Notification No. 11 / 95 –CE(NT) dated 16.03.1995, whereby clause (d) and clause (e) were added and Notification No. 14 / 96 –CE(NT) dated 23.07.1996, which substituted clause (a), clause (b) and clause (c) as it existed prior to 16.03.1995, it is abundantly clear that the meaning of ‘Capital goods’ which was liberal prior to 23.07.2006 was not restrictive. However, now under Rule 57Q, the definition of ‘Capital goods’ is restrictive and reads as under:

“Explanation – For the purposes of this section, – (1) ‘Capital goods’ means, following goods falling within the Schedule of the Central Excise Tariff Act, 1985 (5 of 1986) and used in the factory of the manufacturer, namely,–

(a) all the goods falling under Chapter 84 (other than those falling under heading 84.07 to 84.09, compressors falling under heading 84.14 and of a kind used in refrigerating and air conditioning appliances and machinery, heading or sub-heading 84.15, 84.18, 84.24, 84.29 to 84.37, 84.40, 84.50, 84.52, 84.69 to 84.74, 84.76, 84.78 expansion valves and solenoid valves falling under sub-heading 8481.10 of a kind used for refrigerating and air-conditioning appliances and machinery);

(b) all goods falling under chapter 85 (other than those falling under heading 85.09 to 85.13, 85.16 to 85.31, 85.39 and 85.40);

(c) all goods falling under heading 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 refrigerating and air conditioning appliances and machinery);

(d) components, spares and accessories of the goods specified against items (a) to (c) above;

(e) moulds and dies:

(f) refractories and refractory materials;

(g) tubes and pipes of iron and steel or copper or aluminium used for conveying inputs, on which credit of duty is taken, intermediate goods or final products in the factory; and (h) pollution control equipment.”

10) In view of the definition of ‘Capital goods’ as it existed prior to 23.07.1996, and accepted by the Apex court in Commissioner of Central Excise, Coimbatore Vs. Jawahar Mills Ltd. (supra), we are of the view that the CESTAT has committed no error of law by allowing the Modvat credit to the assessee in respect of (i) Laboratory Homogenizes, Lab Scientific / Hospital Equipments (ii) Module of Chapter Heading No. 85.38 (iii) Gas Detection Systems of Chapter Heading No. 85.31 (iv) Lube / Sealant of Chapter heading No. 32.14 and (v) Tower Packing of Chapter Heading no. 84.19, for the year 1994-95 (upto Feb 1995), used for manufacture of glycol and other industrial chemicals in their factory.

11) For the reasons, as discussed above, the question of law is answered in favour of the respondent (assessee), and against the Revenue. Consequently, the appeal is liable to be dismissed. The same is dismissed.

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