Custom, Excise & Service Tax Tribunal
M/S Associated Cement Companies Ltd vs Cce, Bhopal on 16 December, 2009
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
NEW DELHI
PRINCIPAL BENCH - COURT NO. 1
Excise Appeal No. 5571 of 2004
(Arising out of Order-in-Appeal No. 604/CE/BPL/2004 dated 17.08.2004 passed by the Commissioner of Central Excise (Appeals), Bhopal).
DATE OF HEARING : 16.12.2009
DATE OF DECISION : . .2010
FOR APPROVAL AND SIGNATURE :
HONBLE MR. JUSTICE R.M.S. KHANDEPARKAR, PRESIDENT
HONBLE MR. RAKESH KUMAR, MEMBER (TECHNICAL)
1.
Whether Press Reporters may be allowed to see the order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982 ?
2.
Whether it should be released under Rule 27 of the CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not ?
3.
Whether their Lordships wish to see the fair copy of the Order ?
4.
Whether Order is to be circulated to the Departmental Authorities?
M/s Associated Cement Companies Ltd. . Appellants
(Rep by Sh. Atul Gupta, Co. Secy.)
VERSUS
CCE, Bhopal . Respondent
(Rep. by Sh. B.S. Soni, SDR)
CORAM : HONBLE MR. JUSTICE RMS KHANDEPARKAR, PRESIDENT
HONBLE MR. RAKESH KUMAR, MEMBER (TECHNICAL)
ORAL ORDER NO.____________________________
PER JUSTICE R.M.S. KHANDEPARKAR :
Heard the learned Company Secretary for the appellants and the learned DR for the respondent. We have also perused the written submissions filed on behalf of the appellants.
2. The appellants are challenging the order dated 17th August, 2004 passed by the Commissioner (Appeals).
3. The appellants are the manufacturers of Portland Cement classifiable under Chapter sub-heading 2502.29 of the Central Excise Tariff Act, 1985. A show cause notice dated 28th April, 1995 came to be issued to the appellants requiring them to show cause against denial of modvat credit to the tune of Rs. 41,82,161/- for the period from 1st November, 1994 to 28th February, 1995. According to the Department the said modvat credit was sought to be availed by the appellants claiming the items to be capital goods within the meaning of the said expression under Rule 57Q(1) of the Central Excise Rules, 1944, when, in fact, the said items did not satisfy the requirements of the said expression. The adjudicating authority by its order dated 28th May, 2001 confirmed the demand to the tune of Rs. 41,81,811/- and ordered payment of interest thereon besides imposition of penalty of Rs. 50,000/-. Being dissatisfied, the matter was carried in appeal. However, the Commissioner (Appeals) by his order dated 17th August, 2004 partly allowed the appeal and modified the order while confirming the demand in relation to the major amount claimed thereunder.
4. The impugned order is sought to be challenged on two grounds. Firstly, that the items like oxygen and acetylene gases are used for cutting, repairing, installation and maintenance of plant & machinery, and without such activities the process of manufacture could not be continued. It would be commercially inexpedient to manufacture the final product without such essential activities and, therefore, the said activities are integrally connected with the manufacturing process. The reliance is placed in the decisions of the Supreme Court in the matter of J.K. Cotton Spg. & Wvg. Mills Co. Ltd. vs Sales Tax Officer, Kanpur, reported in 1997 (91) ELT 34 (SC) and Commissioner of Central Excise, Coimbatore vs. Jawahar Mills Ltd., reported in 2001 (132) ELT 3 (SC). Secondly, it is the contention on behalf of the appellants that the goods could be capital goods if they satisfy any of the three conditions under Rule 57Q of the Central Excise Rules, 1944. The conditions are - (i) they are used for producing final goods; (ii) they are used for processing of final goods; or (iii) they are used for bringing about any change in any substance for manufacture of final product. Further, under Notification No. 11/95 dated 11.03.1995 with the insertion of clause (d) and (e), many of the goods in question which satisfy any of the said conditions would be entitled to claim the modvat credit. It was, therefore, necessary for the authorities below to ascertain the use of each of those items to find out whether the items could be included in clause (d) or (e) and would be capital goods within the meaning of the said expression under the said Rules. Reliance is placed in that regard in the matter of Jawahar Mills (supra), Commissioner of Central Excise, Indore vs Surya Roshni Ltd. reported in 2001 (128) ELT 293 (LB-T); Jawahar Mills Ltd. vs Commissioner of Central Excise, Coimbatore, reported in 1999 (108) ELT 47 (T); and Commissioner of Central Excise, Meerut-II vs India Glycols Ltd., reported in 2008 (230) ELT 39 (Uttarakhand).
5. On the other hand, the Departmental Representative submitted that, merely because the items are used in the repairs and maintenance of the plant, it would not result in use thereof in the process of manufacture of the final products, either directly or indirectly. The Notification No. 11/95 dated 16.03.1995 was not retrospective in nature and could not be applied for the period in question. Reliance is placed in the decision of the Larger Bench of this Tribunal in the matter of Surya Roshni Ltd. (supra) while drawing our attention to para 12 thereof.
6. The impugned order apparently discloses that the authorities below have denied the modvat credit in relation to the items in question on the ground that they were used not in the process of manufacture of the final product, but the same were used in the process of installation or repairs or the maintenance of the plant & machinery and that the Notification No. 11/95 dated 16.03.1995 was not retrospective in nature.
7. Undisputed facts are that the period relevant for the decision in the matter in hand is from 1st November, 1994 to 28th February, 1995, that the final product manufactured in the plant was cement, and that the items were not used in the production of or in the process of manufacture of the said final product, but they were used in the process of installation and/or maintenance and repairs of the plant & machinery. The Notification No. 11/95 dated 16.03.1995 came into force w.e.f. 16th March, 1995 i.e. after the expiry of the relevant period. There are clear findings of facts in these regard and nothing is brought to our notice to point out any sort of perversity or any incorrectness in those findings. They are clearly borne out from the record. Even in the course of the arguments, no material was pointed out from the records to show that those items or any or more of them were used in the process of manufacture of the final product or were someway connected with the process of manufacture of the final product.
8. During the relevant period, the provisions of law applicable to the facts of the case were as under :
Rule 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 of specified duty paid on the capital goods used by the manufacturer in his factory and for utilising the credit so allowed towards payment of duty of excise leviable on the final products, or as the case may be, on such capital goods, if such capital goods have been permitted to be cleared 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, -
`Capital goods means -?(1)
(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.
(2) 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 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, 51.04, 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.
9. In fact, based on the findings arrived at by the lower authority, which are borne out from the record, the appeal is liable to be dismissed. Besides, in the matter of J.K. Cotton Spg. & Wvg. Mills Co. Ltd. (supra), the Apex Court had clearly ruled that:
The expression in the manufacture of goods should normally encompass the entire process carried on by the dealer of converting raw materials into finished goods manufacture of goods should normally encompass the entire process carried on by the dealer of converting raw materials into finished goods. 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 commercially inexpedient, goods required in that process would, in our judgment, fall within the expression in the manufacture of goods. For instance, in the case of a cotton textile manufacturing concern, raw cotton undergoes various processes before cloth is finally turned out. Cotton is cleaned, carded, spun into yarn, then cloth is woven, put on rolls, dyed, calendered and pressed. All these processes would be regarded as integrated processes and included in the manufacture of cloth. It would be difficult to regard goods used only in the process of weaving cloth and not goods used in the anterior processes as goods used in the manufacture of cloth. To read the expression in the manufacture of cloth in that restricted sense, would rise many anomalies.. In our judgment if a process or activity is so integrally related to the ultimate manufacture of goods so that without that process or activity manufacture may, even if theoretically possible, by commercially inexpedient goods intended for use in the process or activity as specified in Rule 13 will qualify for special treatment. This is not to say that every category of goods in connection with manufacture of, or in relation to manufacture, or which facilitates the conduct of the business of manufacture will be included within Rule 13... The expression in the manufacture takes in within its compass, all processes which are directly related to the actual production Building materials including lime and cement not required in the manufacture of tiles for sale cannot, however, be regarded within the meaning of Rule 13, as raw materials in the manufacture or processing of goods or even as plant. It is true that buildings must be constructed for housing the factory in which machinery is installed. Whether a building is a plant within the meaning of Rule 13, is a difficult question on which no opinion need be expressed. But to qualify for specification under Section 8(3)(b) goods must be intended for use of the nature mentioned in Rule 13, in the manufacture of goods. Building materials used as raw materials for construction of plant cannot be said to be used as plant in the manufacture of goods. The Legislature has contemplated that the goods to qualify under Section 8(3)(b) must be intended for use as raw materials or as plant, or as equipment in the manufacture or processing of goods, and it cannot be said that building materials fall within this description.
10. Considering the law on the point in issue, the Apex Court in J.K. Cotton Spg. & Wvg. Mills Co. Ltd.s case (supra) after observing as under :
Without a design of the goods sought to be manufactured in a factory which is geared to production of goods of uniform pattern, it would be impossible to attempt manufacture of goods on a commercial scale. The production itself has to be of a set pattern, and deviation from the design prepared would be impermissible. That without the use of drawing and photographic materials, designing of patterns would, if not impossible held that :
Drawing and photographic materials falling within the description of goods intended for use as equipment in the process of designing which is 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.
11. The Apex Court then ruled that :
If, having regard to normal conditions prevalent in the industry, production of the finished goods would be difficult without the use of electrical equipment, the equipment would be regarded as intended for use in the manufacture of goods for sale and such a test, in our judgment, is satisfied by the expression electricals.
12. The decision in Jawahar Mills Ltd.s case (supra) was relating to the period after 16th March, 1995. Therein the Larger Bench of the Tribunal, after noting that the issue was whether the amendment effected in Notification 11/95 dated 16.03.1995 under Rule 57Q and Notification 14/96-CE dated 23.07.1996 was retrospective had become academic and therefore the matter before the Tribunal was required to decide according to the language of the provision as it stood at the material time. The Tribunal, therefore, held that :
We are required to examine Explanation 1(a) as it stood in 1994-95 and 1995-96 and we therefore, see force in the contention of the assessees that the items which are recognised as eligible to capital goods credit by Notification 14/96 are items covered by Explanation 1(a) and it cannot be contended by the Revenue that these items are not covered by the headings mentioned in Notification 14/96 or that the items are not capital goods within the meaning of Explanation 1(a) under Rule 57Q as it stood during the relevant period.
13. The Larger Bench did not decide the issue of retrospectivity of the said amended provision and on the contrary held that, the issue to be decided with reference to the provision of law as it stood during the relevant time. In other words, the point of retrospectivity was indirectly answered in negative. Further, it was held that whether the item was the capital goods or not was required to be decided by referring to clause 1(a) of Rule 57-Q as it stood at the relevant time i.e. prior to the amendment.
14. Larger Bench in Jawahar Mills Ltd.s case (supra), while considering the meaning of the expression used for producing or processing referred the decision of the Supreme Court in J.K. Cotton Spg. & Wvg. Mills Co. Ltd.s case (supra) and while observing that, the said expression was not limited to the ingredients or the commodities used in the process or those directly and actually needed for turning out or the creation of the goods and further that, the issue as to whether amendment effected in Notification No. 11/95 and the Notification No. 14/96 was retrospective or not was purely of academic nature and need not be decided, held that, Wires and cables would be covered by the expression `plant being an item necessary for the assessee to carry on his business and being an item not in the nature of a consumable, but an item having fairly high degree of durability. However, the said ruling was in fact situation where there was no dispute that those items do satisfy the requirement of capital goods within the meaning of the said expression in Rule 57Q as regards the user thereof and this is crystal clear from the decision of the Apex Court in the same matter when the case was carried in appeal before it. The Apex Court in the matter of Commissioner of Central Excise, Coimbatore vs. Jawahar Mills Ltd., reported in 2001 (132) ELT 3 (SC), held that :
The main contention of Mr. Rohtagi, however, is that the question 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 thereof availment of modvat credit has been allowed by the Tribunal would 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).
15. The decision of the Apex Court clearly discloses that the ruling of the Larger Bench in Jawahar Mills Ltd.s case (supra) about the items which were subject matter of the case were capital goods within the meaning of the said expression under Rule 57Q was based on undisputed use thereof in the process of manufacture of the final goods, and in the absence of any dispute by the Revenue that the goods satisfy the ingredient of the Rule 57Q(1)(a) of the said Rule. It was not a case where capital goods were used in the process of repairs and/or maintenance of the plant or goods which in turn help the process of manufacture of the final product.
16. It is also pertinent to note that the decision in Jawahar Mills case (supra) by the Apex Court was arrived at after taking note of its earlier decision in Indian Farmers Fertilizers Corporation Ltd. vs Collector of Central Excise, Ahmedabad, reported in 1996 (86) ELT 177 (SC), wherein the question was whether ammonia used in the off-site plant was also ammonia which is used elsewhere in the manufacture of fertilizers. The off-site plants were held to be part of the process of manufacture of urea. Considering the phraseology used in the exemption Notification, it was held that the exemption is not limited to the raw naphtha used for producing when that is utilized directly in the urea plant since the Notification only required the ammonia should be used in the manufacture of fertilizers and not that it should be directly in the manufacture of fertilizer. It was held thus :
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. [Emphasis supplied] It was only upon taking into consideration the phraseology of the notification and the undisputed facts of the case in hand that the Apex Court dismissed the appeal against the order of the Larger Bench.
17. An activity which is necessary for commencement or continuation of the plant which in turn helped commencement or continuation of the process of manufacture of the final product does not form part of the activity of such process of manufacture of the final product, nor the materials used for the former activity could be said to the materials used in the later activity. Cutting, repairing, installation and maintenance of plant and machinery do not form part of process of manufacturing or producing the final product, even though such activities are necessary to keep the plant in progress. The process of manufacturing of final product and not the process of maintenance of plant is to be considered. The process of manufacture of plant proceeds the process of manufacture of the final product. It cannot form part of the process done in the course of manufacture of final product. On the contrary, the activity of maintenance of repair stands concluded prior to the commencement of the process of manufacture of the final product. Being so, such activity relating to maintenance or repair or any other activity relating thereto cannot form part of the process of manufacture of the final product.
18. The period involved is 01.11.1994 to 28.02.1995. The Rules (d)&(e) to Rule 57-Q were inserted for the first time under Notification No. 11/95-CE(NT) dated 16.03.1995. Being so the same cannot apply to the facts of the case.
19. For the reasons stated above, we find no infirmity in the impugned order and, therefore, the appeal fails and is hereby dismissed.
(JUSTICE R.M.S. KHANDEPARKAR) PRESIDENT (RAKESH KUMAR) MEMBER (TECHNICAL) Golay 13