Customs, Excise and Gold Tribunal - Tamil Nadu
Hindustan Shipyard Ltd. vs Commr. Of C. Ex. on 28 July, 1997
Equivalent citations: 1998(99)ELT371(TRI-CHENNAI)
ORDER
V.P. Gulati, Vice President
1. The issue in the appeal relates to benefit of Notification 431/86 under which the goods manufactured in shipyard intended for use in the manufacture or repair of the goods falling under certain headings are exempt. The appellants' item is Caisson Gate which is classifiable under Heading 89.07 which figures under the Notification. The plea of the appellants is that Caisson Gate is used in the manufacture of the goods in the shipyard. The purpose and use of Caisson Gate as set out in the order of the original authority in Para 2 is reproduced below for convenience of reference:
2. In the instant case, Caisson Gate was a 300 tonne steel structure, fabricated to suit to the size of graving dock for purpose of isolating the dock from the sea. For the purpose of repair, the ship has to enter the dry dock premises. To facilitate the movement of the vessel, the Caisson Gate is to be shifted away from its original position. During the course of manufacture or repair, the gate is completely closed in which case it acts as a water tight door for the dock. This prevents any sea water from flooding the dry dock. After the repair work is over, the gate is again lifted so that the vessel can sail out of the dry dock into the sea. It is thus, in the nature of a gate which only function is to protect the dry dock area from the submergence of sea water.
The question therefore to be determined in the appeal is whether the item in question, the manner in which it is used can be taken to be of the nature covered under the aforesaid Notification.
2. Shri Sarveswara Row, learned Counsel for the appellants does not contest the factual position as to the manner in which Caisson gate is used. The plea however is that since the Caisson gate as such is manufactured and is installed therein and its use is essential for carrying out the operations in the shipyard, the benefit as claimed in terms of the Notification should be allowed. The learned Counsel in this connection referred us to the judgment of the Hon'ble Supreme Court in the case of Rajasthan State Chemical Works v. C.C.E. reported in 1991 (55) E.L.T. 444 (S.C.) to urge that the term used as set out in the Notification should be taken to be a term of wider import. He has pleaded that the Hon'ble Supreme Court in the case of Rajasthan State Chemical Works has in the context of Notification 179/77-C.E., dated 18-6-1977 held that if any operation during the course of manufacture of a finished product is so integrally connected with further operations which result in the emergence of manufactured goods, such operation should be taken to be in relation to the manufacture of the finished product. He in this connection drew our attention to the Notification 431/86 which is reproduced below for convenience of reference :
Exemption to goods produced in a shipyard and used in manufacture of goods falling under Heading Nos. 89.01, 89.02, 89.04, 89.05 (excluding floating or submersible drilling or production platforms) and 89.06. In exercise of the powers conferred by Sub-rule (1) of Rule 8 of the Central Excise Rules, 1944, the Central Government hereby exempts all excisable goods manufactured in a shipyard and intended for use in the manufacture or repair of goods falling under Heading Nos. 89.01, 89.02, 89.04, 89.05 (excluding floating or submersible drilling or production platforms) and 89.06 in the same shipyard in which such goods are manufactured or any other shipyard of the manufacturer of such goods, from the whole of the duty of excise leviable thereon which is specified in the Schedule to the Central Excise Tariff Act, 1985 (5 of 1986):
Provided that where such use is in a shipyard of the manufacturer of such goods, different from his shipyard where the said goods have been manufactured, the exemption contained in this notification shall be allowed only if the procedure set out in Chapter X of the Central Excise Rules, 1944, is followed.
(Notification No. 431/86-C.E., dated 6-10-1986 as amended by Notifications No. 144/87-C.E., dated 15-5-1987and No. 227/87-C.E., dated 24-9-1987).
He has pleaded that the term exemption purposes "intended for use in the manufacture or repair of goods" will be taken to mean use of the article in the shipyard which would facilitate manufacture and repair operations. In this connection he drew our attention to the judgment of the Hon'ble High Court of Orissa reported in Vol. 74 STC 296. To elaborate the term 'use' in Para 13 of the judgment the following has been set out:
'13. The Gujarat decision AIR 1969 Guj. 344 (Jafarabad Municipality v. Kathiawar Industries Ltd.) has delved deep to construe the expression "use" and again I may usefully utilise the labour put in by the learned judges in that case. According to the dictionary meanings, the word "use" is generally meant to convey the meaning "to employ for, or to apply to a given purpose". In a taxing provision, the expression has to be noticed in the matter of its context. Although the expression "consumption" in its wider sense would also be an "user", but since the taxing provision has used the word "use" along with the word "consumption", it is reasonable to hold that the legislature contemplated in the word "use", "the user" of any goods in a sense other than "consumption". In order to bring home this point, the decision has given the illustration of the user of steel furniture, precious stones and ornaments, a motor car and thereafter made a very apt observation with which I respectfully agree, that "although a change in the article would be indicative of "use", there may be user also without any noticeable change as in the instances mentioned earlier. Whether or not there would be a change in the article would depend upon the nature of the article and the purpose of its employment or use. It may well be that the article is such and the purpose for which it is brought in is such that a change in the article is to be expected if it is used. The relevant factors to be considered whether or not there has been user of an article therefore are the nature of the article and the manner in which it is dealt with or the purpose for which it is employed".
I am of the confirmed view that this should be the correct approach to the problem. The definition of "sale" under the taxing-provisions has undergone tremendous changes in the last decade to cover within its fold various other subsidiary modes of sale such as the system of hire-purchase, supply of goods under an agreement of works contract and the like, where the title in the goods passes to the purchaser in somewhat a different mode and manner. The delivery of any goods to a hirer, like giving possession of any tangible property to a lessee, confers upon him the right to hold it for a particular period as a matter of right. Its user also causes some wear and tear and depreciation in value, thus diminishing its life.
In essence, therefore, there is a grain of ingredient of the "right" which a purchaser acquires on a completed transaction of sale, present in these transactions also. The life of a cinematograph film which is brought for exhibition is also of a limited duration. An exhibitor may outright purchase a film, and, to use the expression, the film may be "used up" completely by its continuous and long exhibition, or it can be used only for a limited period, say even exhibiting for one show only. But it cannot be anything else than its "use" within the meaning of Clause (kk) making the film suffer by the gradual process of being used up. In my view, this would be the only harmonious construction to further the intention of the legislature, and taking any other view would amount to frustrating its intention and be against the principles of a reasonable construction.' He also referred to the decision of this Tribunal in the case. M.M. Forgings reported in 1997 (89) E.L.T. 617. In Para 4 the Tribunal has held as under:
4. We have considered the pleas made by both the sides. We observe that on reading of the definition of capital goods as set out under Rule 57Q, we ourselves had entertained a doubt prima facie that the equipment like Fork Lifts may not be covered by this definition. A plain reading of the definition would appear to indicate that the activities in which the capital goods are to be used have to be such that these are for either producing or processing of the inputs or for bringing about any change in the materials used for the manufacture of the finished products. However we observe that the scope of Modvat Scheme was enlarged to cover the capital goods with a view to give relief to the industry from cascading effect of duty. The term 'capital goods' therefore has to be read in the context of the use of the equipments in the assessee's factory. What has to be seen is whether the equipment used is a part of the manufacturing stream in the assessee's factory and whether the use is for production or processing or for bringing about any change in the materials used in the manufacture of the final product. The Hon'ble Supreme Court in the case of Collector of Central Excise v. Rajasthan State Chemical Works reported in 1991 (55) E.L.T. 444 had occasion to consider the scope of the term 'processing' in the assessee's factory in that case and which equipment was only doing the function of lifting of brine solution. In that case the Hon'ble Supreme Court has clearly held that handling would also be a process in the context of notified finished products in case it could be shown that without the function of handling the final product could not be manufactured. What is therefore to be seen is whether the equipment which is brought in as such that without the use of which for handling purpose the final product cannot be manufactured in the appellants' factory. In that event the benefit of Modvat credit in respect of that equipment has to be allowed. In the present case the goods involved are Fork Lifts which are used for lifting. The respondents it has been pleaded are manufacturing iron forgings of various sizes weighing as much as one tonne or so and unless these are lifted and the materials out of which the same has been manufactured are transported, the manufacturing process is not possible. We observe that the respondents' case in the light of the plea made will have to be considered in the light of the judgment of the Hon'ble Supreme Court referred to supra. The plea of the Revenue is that the definition of capital goods as set out under Rule 57Q should not be read with the wordings of Rule 57-S. We observe that the Modvat Scheme is an integrated scheme and there are various provisions under different rules from which the scope of the scheme can be read. Under Rule 57-S it is clearly stated that the Modvat credit in respect of capital goods can be utilised so long as the same were used in or in relation to the manufacture of the final product. This clear provision about the use as above cannot be ignored and the use of the capital goods therefore for Modvat purpose will have to be considered in or in relation to the manufacture of the notified products. We therefore find no force in the plea of the Revenue and we hold that the appellants would be entitled to benefit of Modvat credit in case they are able to show that the use of Fork Lifts is essential in the respondents' factory and without the use of the same the Respondents would not be able to manufacture the final product. In this view of the matter we remand the matter to the learned lower authority for this limited purpose. We dismiss the appeal subject to the above observations.
Further, reliance was also placed on the decision of the Tribunal in the case of Cochin Port Trust reported in 1992 (57) E.L.T. 321. In that case, the issue related to the benefit of Notification 118/75 i.e. use of the goods manufactured within the same factory. The Tribunal in that case has held as under (paras 5 to 7):
5. It has been contended on behalf of the appellant Collector that even though the dry-dock was adjacent to the workshop/factory where the goods were being manufactured, the excisable goods used for the repair of vessels in the dry-dock were not eligible for exemption under Notification No. 118/75 since in terms of Section 2(e) of the Central Excises and Salt Act, 1944 the dry-dock where no manufacturing activity was carried out could not be deemed as part of the factory or its precinct. In this regard it is seen that in the case of Delhi Cloth and General Mills Co. v. Joint Secretary, Govt. of India reported in 1978 (2) E.L.T. (J 121) the Honourable Supreme Court has observed that the definition of "factory" in Section 2(e) of the Central Excises and Salt Act, 1944 makes it clear that.it is the whole of the premises in a part of which excisable goods are manufactured and its meaning cannot be deemed to be restricted only to the part of the premises in which such goods are manufactured. The relevant extracts from the judgment are reproduced below :-
'The expression "factory" is defined in Section 2(e) to mean any premises including the precincts thereof wherein or in any part of which excisable goods are manufactured. The definition covers the present case because the calcium carbide is manufactured in one part of the factory while the acetylene gas is manufactured in another part thereof. The definition of "factory" makes it clear that the meaning of factory is not restricted to only the part in which the excisable goods are manufactured. On the other hand it includes the whole of the premises is a part of which such goods are manufactured.'
6. It is also seen that in the case of Indian Iron & Steel Co. Ltd. v. Collector of Central Excise reported in 1990 (46) E.L.T. 409 (Tribunal), the Tribunal had occasion to interpret the exemption Notification No. 281/86 under the new Tariff which corresponds to the exemption which was available in terms of Notification No. 118/75 under the erstwhile Central Excise Tariff. It was held that so long as the excisable goods manufactured in a workshop within a factory are intended for use in that factory for the purpose of repair and maintenance of machinery, the exemption cannot be denied on the ground that only goods manufactured in a workshop which is restricted to a tool room would be eligible for exemption. An extract from Para 3 of the Tribunal's order is reproduced below :-
"When the Notification does not define a Workshop, the Revenue cannot give a finding this it refers to a smaller place called a tool room. So long as the excisable goods are manufactured in a workshop within a factory and intended for the use in the said factory for the purpose of repair and maintenance of machinery, the exemption cannot be denied on the score that only goods capable of manufacture in a workshop which is restricted to a tool room is eligible for exemption. The import of this notification cannot be given effect to by such a restricted application. Especially in view of the fact that earlier, prior to the introduction of the new Tariff, such exemption was in existence in terms of Notification No. 118/75, dated 30-4-1975, which, however, did not make any mention of workshop. In 1983 (12) E.L.T. 209 (Kar.) India Sugars & Refineries Ltd. v. Union of India and Ors. interpretation of a notification has been discussed :-
"If an expression in Notification is used in plain and meaningful language there is no scope for assuming an ambiguity and trying to interpret it on a supposed intention of the makers of the notification."
Further in 1983 (13) E.L.T. 1017 (CEGAT), Hercules Tyre & Rubber Industries v. Collector of C. Ex., Chandigarh, it has been indicated that "the notification should not be construed in a manner which defeats the very purpose of the notification."
7. In the case before us we find from the impugned order that the Collector (Appeals) after inspecting of the relevant sketch map has recorded the finding that the dry-dock was surrounded by various sections of the workshop like welding, fabricating, carpentry, foundry, blacksmithy, tin-smithy etc. and these sections of the workshop including the dry-dock were surrounded by a single compound wall with one entrance from the road side. Under these circumstances, on the ratio of the decisions quoted above, we are of the view that the entire complex consisting the various sections of the workshop and the dry-dock constituted the factory premises and various excisable goods falling under Tariff Item 68 manufactured after subjecting the raw materials to various processes in different sections of the workshop, when used in the dry-dock were eligible for exemption under Notification No. 118/75-C.E.
2. The learned DR for the department has pleaded that the Notification in question implied direct use of the goods in question for manufacture of other goods in the shipyard. Caisson gate in question, he has pleaded, was in the nature of a structural item and therefore, by its very use for isolating the water outside the dock, it could not be taken to have been used in the manufacture or repair of the goods specified in the notification.
3. We have considered the pleas made by both the sides. We observe that a perusal of the wording of the Notification shows that the goods in respect of which the benefit of notification is available are such of those goods which are manufactured in the shipyard and are intended to be used in the manufacture or repair of the goods falling under Headings 89.01, 89.02, 89.04, 89.05 (excluding submersible, drilling or production platforms - 89.06). We observe that the use contemplated is "in the manufacture or repair of other goods". The Notification does not incorporate the words "used in relation to the manufacture of a given category of goods". While use in the manufacture, can be of wider import, as held by the Hon'ble Supreme Court in the case of Rajasthan State Chemical Works, the context in which these words have been used should be taken note of. In the decision of the Hon'ble Supreme Court cited before us, note was taken of the definition of 'manufacture' as given in Section 2(f) of the Central Excise Act, 1944 and it has been observed by the Hon'ble Supreme Court in that case, that the manufacture involves series of processes and that processes of manufacture or in relation to the manufacture implies not only production but the various stages through which the raw material is subjected to change by different operations and that it is the cumulative effect of the various processes to which the raw material is subjected to, that the manufactured product emerges. It has been further observed that where any particular process is so integrally connected with the ultimate production of goods and but for that process, the manufacture would or the process of the goods would be impossible, or commercial expedient that process is the one in relation to the manufacture. We observe that in that case, the issue that fell for consideration was in the context of Notification 179/77 whether pump used in relation to the manufacture of the goods in question for the purpose of consideration of the benefit of the Notification which was available in respect of the goods manufactured without the aid of power. Lifting of water by use of power in that case was held to be process related to the manufacture of the goods and the benefit of notification was denied to the assessee. In the case of Nabin Chandra Narayan Das reported in STC cases Vol. 74 page 296, the issue related to levy of octroi which was leviable under Section 131 of the Orissa Municipal Act, 1950 on the goods brought within the municipal limits for consumption, use or sale therein. In that case, the Hon'ble High Court held that the films brought for exhibition can be taken to be for use in the municipal limits. We observe that the context in which the term "purchase" was incorporated there was different and therefore, the ratio in that case, will not be applicable to the facts of this case. The Tribunal's decision in the case of Cochin Port Trust cited supra also deals with a different situation where the concept of factory fell for consideration and the question of use of the goods manufactured was not in the context in which we are called upon to consider the issue in the present case. The ratio of this decision is also not applicable to the facts of the present case. Likewise in the case of C.C.E. v. M.M. Forgings cited supra, the issue however, related to the scope of the term capital goods and other items of machinery etc. which were used for producing or processing or for bringing about any change in any substance for manufacture of the finished product fell for consideration. We have in that case held that if it could be shown that use of Fork lift truck was essential for the purpose of carrying out the manufacturing activity then handling could be treated as process of manufacture in the light of the judgment of the Hon'ble Supreme Court in the case of Rajasthan Chemical Works cited supra. The question that fell for consideration was whether the process of lifting of the goods would be bringing the item in question within the ambit of the definition of capital goods as defined under Rule 57Q. In the present case, we find that the words used in the Notification are that the goods should be used in the manufacture or in the repair of certain specified goods. The term "used" should be given a wider meaning only to the extent as held by the Hon'ble Supreme Court that it is used for process which is integrally connected with the manufacture of the goods in question. Therefore, what has to be seen is that what is the process of the manufacture of the notified goods in question the use of which the notification permits. It has not been shown that the manufacture of the goods in the present case is in any way integrally connected with the use of the Caisson Gate in question. The Caisson Gate in question, from the use as has been set out in the order of the authorities below is only to provide a barrier for the water to be brought in or to be kept out. The Caisson Gate therefore, provides a structural function like a door to make dry dock area ready for carrying out the operation for the manufacture of the goods falling under tariff heading set out under the Notification. It is possible that with the help of this Caisson Gate, necessary environment is created for the manufacture of the goods in question by providing a dry place and that cannot be equated with the process of manufacture of the goods in question. The process of manufacture of the goods in question may start with the preparation of the materials and taking up the structural work for various operations with reference to that. The use of the Caisson Gate can be taken to be in relation to the manufacture of goods but the notification does not give the assessee benefit in respect of goods which are used in relation to the manufacture of the notified finished product as these words are missing in the notification. The word "used" in the manufacture has to be taken with reference to the integrality of operations of the manufacture of a given product. Various processes involve in the manufacture of a given product for the beginning and end. The manner in which Caisson Gate is used cannot be taken to be in any way integrally connected with the process of manufacture of the products falling under different chapter headings as set out therein. The key to the scope of the Notification can also be found from the fact that the benefit of the Notification in respect of the goods is given when the same are used in the manufacture of the goods failing under Headings 89.01 and 89.02, 89.04, 89.05. The same is not available in respect of the goods falling under these headings which are in the nature of floating or submersible drilling or production platform. These excluded items are manufactured in the shipyard and the Caisson Gate would also be used to facilitate manufacture of these items in the shipyard . If the benefit of notification is extended to the goods in question, then it would become available also for floating, drilling and production platform. Viewed in this background therefore, it is clear that the benefit is only available when the items in question are directly used in the manufacture or repair of the goods falling under specified headings and not in the manner in which the goods in question are used. We, therefore, hold that there is no force in the plea of the appellants and we dismiss the appeal.