Customs, Excise and Gold Tribunal - Delhi
Jawahar Mills Ltd. vs Commissioner Of Central Excise on 13 April, 1999
Equivalent citations: 2000ECR387(TRI.-DELHI), 1999(108)ELT47(TRI-DEL)
ORDER Jyoti Balasundaram, Member (J)
1. The above appeals have been referred to this Larger Bench vide separate reference orders. In all the cases, the issue involved is eligibility or otherwise to the benefit of Modvat credit in terms of Rule 57Q of the Central Excise Rules.
2. The stand of the revenue is that the items in dispute namely welding electrodes, wires and cables etc. are not capital goods within the meaning of the explanation to Rule 57Q which covers goods used only in production, processing or bringing about any change in substance for manufacture of the final product and that the goods in question are not such goods. The Revenue is also of the view that the amendment in Rule 57Q which was made on 16-3-1995 is prospective and not retrospective in operation.
3. In the case of Jawahar Mills Ltd., Modvat credit has been denied on power cables and capacitors; the period of dispute is March 1994 to October 1994. This case has been referred to the Larger Bench by Misc. Order No. 52/98, dated 27-1-1998 1998 (100) E.L.T. 41 (Tribunal), in view of the conflicting views expressed in the Tribunal's order - Modvat credit had been extended on wires and cables in the cases of Century Cement Ltd. v. Collector of Central Excise - 1997 (95) E.L.T. 655, Grasim Cement v. Collector of Central Excise - 1997 (96) E.L.T. 354 and other cases while in the case of SIV Industries by Final Order No. 646/96 dated 16-4-1996, the Tribunal had held that wires and cables used for transmission of electricity would not be eligible to the benefit of Modvat credit as they are not eligible to capital goods in terms of Rule 57Q.
4. In the case of Indian Refrigeration Company Ltd. the items are control panels, cables, distribution boards, switches and starters and air compressors and the issue of eligibility to Modvat credit has been referred to the Larger Bench vide Misc. Order No. 54/98, dated 29-1-1998.
5. In the case of Kothari Sugar and Vijay Chemicals, the issue of eligibility to credit on electric wires and cables has been referred to the Larger Bench vide Misc. Order No. 55/98, dated 21-9-1998.
In the case of Modi Tyre Factory, the issue relating to the eligibility of credit under Rule 57Q on welding electrodes, parts of weighing machines, potential transformers and dust filter parts has been referred to the Larger Bench vide Bench Order dated 17-4-1998.
The issue of eligibility to credit on control panels has been referred vide Bench Order dated 18-5-1998 in the case of Prayag Polytech Ltd.
Electric wires and cables are subject matter of appeal filed by M/s. DLF Cement Ltd. and refers to Bench Order 29-4-1998.
6. We have considered the rival submissions, perused the records and case laws cited before us and record our findings herein below :
Rule 57Q of Central Excise Rules, 1944 as introduced by Notification No. 4/94-CE dated 1-3-1994 reads 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 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, -
(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 weigh bridges used in the factory of the manufacturer.
(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.
Sub-clauses (d) and (e) were added to Explanation 1 of Rule 57Q vide Notification No. 11/95-C.E. (N.T.), dated 16-3-1995. The same also introduced Sub-rule 57Q(2). The same is reproduced below :
(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 84.04 for use with boilers of heading 84.02.
(iii) I.C. engines (other than engines of motor vehicle) faling under heading 84.07 or 84.08.
(iv) compressors (other than of a kind used for refrigerating and air-conditioning applications) falling under heading 84.14.
(v) electric generating sets (of output exceeding 75 KVA) falling under heading 85.02
(vi) transformers (of power handling capacity exceeding 75 KVA) falling under heading 85.04 (vii) Goods (other than for medical use) of heading 90.22
(viii) goods (other than of a kind used for refreigerating and airconditioning [appliances]) falling under heading 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. 68/89-Customs, dated the 1st March 1989 and used in the factory of 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 the specified duty paid on capital goods (other than those capital goods in respect of which credit of duty was allowable under any other rule or notification prior to the 16th day of March 1995) shall be allowed if such capital goods were received in the factory before the 16th day of March 1995)
7.3 Vide Notification 14/96-C.E. (N.T.), dated 23-7-1996, the entire explanation was changed. Consequential amendments were also made in Rule 57Q(2). The same reads as under:
Explanation. - for the purpose 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 (2) 'specified duty' means duty of excise or the additional duty under section (3) of the Custom Tariff Act, 1975 (51 of 1975).
(3)(2) Notwithstanding anything contained in Sub-rule (1)
(i) No credit of the specified duty paid on capital goods (other than those capital goods in respect of which credit of duty was allowable under any other rule or notification prior to the 23rd July, 1996) shall be allowed if such capital goods were received in the factory before the 23rd July, 1996).
(ii) no credit of the specified duty paid on capital goods (other than those capital goods covered under Sub-clause (1) or items (ix) and (x) of Sub-clause (d) of Clause (1) of explanation to Sub-rule (1) received in the factory on or after the 1st day of January, 1996, shall be taken on a date prior to the date on which such capital goods are installed or, as the case may be, used for manufacture of excisable goods in the factory of the manufacturer as certified by such manufacturer or an officer designated by him for this purpose :
Provided that where the manufacturer intends to remove such capital goods from his factory for home consumption or for export, prior to their being installed or used, as the case maybe, the manufacturer shall be allowed to take credit on the date on which such capital goods are so removed by him from his factory on payment of appropriate duty of excise leviable thereon.)
8. Para 108 of the Finance Minister's speech on 1995 Budget reads as under:
"108. There have been requests from trade and industry for liberalisation and simplification of Modvat scheme. With this end in view, I am proposing the following relaxation in the Modvat Rules:
Allowing Modvat credit for specified quality control testing pollution control and R&D equipment.'
9. Para 38 of the Finance Minister's Speech on Budget 1996 reads as under:
"138 The Modvat Scheme which provides for duty credit on inputs and capital goods has been liberalised considerably over the past few years. Still there are problems about the coverage of certain inputs and capital goods. I propose to clarify the scope of eligible capital goods by specifying the heading and sub-headings of the tariff relating to capital goods in the Modvat Rules."
10. Para 16(iii) of the circular issued along with the Budget 1995 which is relevant in this regard reads as under:
" (iii) In the case of capital goods, the scope of capital goods has been extended by specifying a large number of machinery which will qualify for credit under Rule 57Q. In respect of such capital goods, it has been provided that so long these are used in the factory of production, credit will be allowed, without the need to establish as to whether such capital goods are used in the manufacture of finished goods. It may be clarified that any equipment etc, purchased by a manufacturer but not used within the factory will not be admissible for Modvat. For instance, R&D equipment used by a manufacturer in their laboratory outside the factory will not be eligible for Modvat. If however, such laboratory is part of the manufacturer's factory, Modvat will be admissible."
11. Para 5.1 is the relevant portion of the Budget circular issued by CBEC in connection with Finance Bill, 1996 and the same reads as under :
Modvat Scheme - the Modvat scheme has been amended in several respects. - In Rule 57Q(1), specific headings and sub-headings have been mentioned. Thus any goods falling under these would be admissible for Modvat credit and anything not falling under these headings or sub-headings will not be admissible for Modvat credit. This has been done to resolve the interpretational problems about the scope of Rule 57Q.
12. In Indian Copper Corporation Ltd. 1965 (16) STC 259, the Supreme Court was dealing with Section 8(3) (b) of Central Sales Tax Act, 1956, read with Rule 13 of the Central Sales Tax (Registration & Turnover) Rules, 1957. Under Section 8(3)(b) of the Act, every dealer who in the course of inter-state trade or commerce sells to a registered dealer other than Government, goods of the description specified in Sub-section (3) shall be liable to pay tax under the Act which shall be one per cent of the turnover. Section 8(3)(b) reads as under:
"(3) The goods referred to in Clause (b) of Sub-section (1)-
(a)
(b) in the case of goods other than declared goods, are goods the class or classes specified in the certificate of registration of the registered dealer purchasing the goods as being intended for resale by him or subject to any rules made by the Central Government in this behalf, for use by him in the manufacture or processing of goods for sale or in mining or in the generation or distribution of electricity or any other form of power."
13. Rule 13 reads as under :
"The goods referred to in Clause (b) of Sub-section (3) of Section 8, which a registered dealer may purchase, shall be goods intended for use by him as raw materials, processing materials, machinery, plant, equipment, tools, stores, spare parts, accessories, fuel or lubricants, in the manufacture or processing of goods for sale or in mining, or in the generation or distribution of electricity or any other form of power."
14. The assessee in that case was mining copper and iron ore from its own mines, transporting the ore to its factory and manufacturing finished products from the ore for sale. The company inter alia claimed the following goods to be covered by Section 8(3)(b).
(a) Locomotives and motor vehicles, accessories and spare parts there- of including tyres for motor vehicles
(b) Laboratory, hospital equipment with furnishings and fittings
(c) Medical supplies
(d) Stationery
(e) Cane baskets
15. Hospital equipment etc. were necessary for running hospital for maintaining health and fitness of the persons employed in the mining operations and the manufacturing of the goods. Medical supplies were for treatment of the workers. Laboratory fittings were essential for sampling and analysing of ores and other raw materials in the mining operations and in the process of manufacture. Stationery was required for maintenance of records and returns furnished to the Government departments, etc. Cane baskets were required for carrying ore and other materials used in the process of manufacture and also for use of the sanitary department for collecting refuse to protect cleanliness and health in the colony of the workers.
16. Of the above items, the High Court excluded the locomotives and motor vehicles used by the Corporation after the mining operations were concluded and before the manufacturing process commenced, as also vehicles used' in carrying the finished products from the factory on the conclusion of the process of manufacture, on the ground that these are not intended for use in the manufacture or processing of goods for sale or in the mining operations. Laboratory fittings used for sample and analysis of the ore and the raw materials in the initial stages of mining and in the process of manufacture, were held to be eligible by the High Court, but not hospital equipments, stationery and cane baskets used for carrying refuse. Cane baskets used for carrying ore and other materials was held to be outside the purview of Section 8(3)(b) of the Act. The Supreme Court held as under :
"... Nor is there any ground for excluding locomotives and motor vehicles used in carrying finished products from the factory. 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....
"... But we are unable to agree with the High Court that the cane baskets which are required for carrying ore and other materials used in mining or in the manufacture of goods are not intended for use in the process of manufacturing or mining operations "... We are also unable to appreciate why the High Court specified laboratory fittings used for analysis and sampling ore and other raw materials only in the initial stages of mining operations and in the process of manufacture. There is no discussion in the judgment in support of this observation and we see no ground to support the reservation which restricts the specification to laboratory fittings used only in the initial statges.
"The order passed by the High Court will therefore be modified. Items (i), (ii) and (vi) laboratory fittings out of Item-(in) used for sampling and analysis of the ore and other raw materials in the mining operations and in the process of manufacture for sale and cane baskets out of Item (vii) used for carrying ore and other materials used in the course of manufacture, will be specified in the certificate of registration. Household, hospital equipment with furnishings and fittings [part of item (iii)] medical supplies [Item (iv)] stationery [Item (v)] and cane baskets used for collecting refuse to protect the health and cleanliness in the colony of workmen [part of item (vii)] will not be included in the certificate of registeration."
17. In J.K. Cotton Spinning & Weaving Mills Co. Ltd. v. STO 1997 (91) E.L.T. 34, the Supreme Court again considered the scope of Section 8(3)(b) read with Rule 13. The assessee was engaged in the manufacture and sale of cotton textiles, tiles and other commodities. In the Writ Petition against the order of the Sales Tax Officer, the High Court held that drawing instruments, photographic materials, electricals, and building materials such as cement, are not comprehended in the expression 'in the manufacture or processing of goods for sale' within the meaning of Section 8(3)(b) read with Rule 13.
18. As seen from para 7 of the judgment, the High Court confirmed the exclusion of drawing and photographic material on the ground that these materials are required merely in the preparation of design which though necessary for turning out textile goods, cannot be said to be goods intended for use in the manufacture of goods. The Supreme Court conceded to the observation of the High Court that without the use of drawing and photographic materials, designing of patterns would, if not impossible, be very difficult.
19. The relevant extract of the above judgment is as under :
"7... But the High Court was apparently of the view, and that view is supported by counsel for the Sales Tax officer, that goods intended for use in the manufacture of goods or processing of goods for sale must of necessity to be goods which are used as ingredients or commodity in the creation of goods, or which are directly and actually needed for turning out or making of the goods.
8... 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. Raw cotton and machinery for weaving cotton and even vehicles for transporting raw and finished goods would qualify under Rule 13 but not spinning machinery, without which the business cannot be carried on. In our judgment, Rule 13 does not justify the importation of restrictions which are not clearly expressed, nor imperatively intended. Goods used as equipment, as tools, as stores, as spare parts or as accessories in the manufacture or processing of goods in mining and in the generation and distribution of power need not to qualify for special treatment under Section 8(1), be ingredients or commodities used in the processes, nor must they be directly and actually needed for turning out or the creation of goods".
9... 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 special treatment. This is not to say that every category of goods in connection with manufacture or, or in relation to manufacture or which facilitates the conduct of the business of manufacture will be included within Rule 13. Attention in this connection may be invited to a judgment of this Court in which it was held that vehicles used by a company (which mined ore and turned out copper in carrying on activities as a miner and as a manufacturer) fell within Rule 13, even if the vehicles were used merely for removing ore from the mine to the factory and finished goods from the factory to the place of storage. Spare parts and accessories required for effective operation of those vehicles were also held to fall within Rule 13. See Indian Copper Corporation Ltd. v. Commissioner of Commercial Taxes, Bihar - C.A. No. 1021 of 1968, dated 19-10-1964 (sic).
10... But there is no warrant for limiting the meaning of the expression in the manufacture of goods, to the process of production of goods only. The expression in the manufacture takes in within its compass, all processes which are directly related to the actual production. Goods intended as equipment for use in the manufacture of goods for sale are expressly made admissible for specification. 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.
12... The expression 'electricals' is somewhat vague. But in a factory manufacturing cotton and other textiles, certain electrical equipment in the present stage of development would be commercially necessary. For instance, without electric lighting, it would be very difficult to carry out the business. Again electrical humidifiers, exhaust fans and similar electrical equipment would be in the modern conditions of technological development normally be regarded as equipment necessary to effectively carry on the manufacturing process. We are not prepared to agree with the High Court that in order that electrical equipment should fall within the terms of Rule 13, it must be an ingredient to the finished goods to be prepared or it must be a commodity which is used in the creation of goods. 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. This would of course not ' include electrical quipment not directly connected with the process of manufacture. Office equipment such as fans, coolers, air-conditioning units, would not be admissible to special rates under Section 8(1)."
20. The Supreme Court has further observed in para 11 that building materials used as raw materials for construction of plant cannot be said to be used as plant in the manufacture of goods and the legislature contemplated that the goods to qualify under Section 8(3)(b) must be intended for use as raw material or as plant or equipment in the manufacture or processing of goods and it cannot be said that building materials fall within that expression. On this reasoning, building materials were denied the benefit of Section 8(3)(b) by the Supreme Court.
21. The definition of capital goods as contained in Explanation l{a) to Rule 57Q is pari materia with the provision construed by Supreme Court in the aforesaid two judgments. Section 8 has already been extracted supra. It refers to the purchase of goods intended for use in the manufacture or processing of goods for sale. Explanation 1(a) to Rule 57Q refers to machine, machinery, etc. used for producing or processing of goods, for manufacture of final products (apart from referring to goods used for bringing about any change in any substance). Thus while Section 8(3)(b) referred to goods used in the manufacture or process of goods, Explanation 1(a) refers to machine, machineries, etc. used for producing or processing of goods. While the Central Sales Tax Act uses the expression, in the manufacture or processing of goods for sale, Explanation 1(a) to Rule 57Q refers to "producing or processing of goods." Manufacture and production are synonymous particularly in this context. It is therefore, clear that the provision contained in Section 8(3)(b) dealt with by Supreme Court in the above cases is pari materia with Explanation 1(a) to Rule 57Q.
22. In addition, Rule 13 referred to the goods being intended for use as raw materials, processing materials, machinery, plant, equipment, tools, stores, spare parts, accessories, fuel or lubricants in the manufacture or processing of goods for sale. Rule 13, no doubt, referred to raw material, processing material, fuels, lubricants and stores. Also the rest of the items mentioned in Rule 13 viz. machinery, plant, equipment and tools are indeed items indicated in- Explanation 1(a) to Rule 57Q. Spare parts and accessories figure in Explanation 1(b) to Rule 57Q. Thus the language employed in the first portion of Explanation 1(a), viz. machinery, machine, plant etc. is also the language employed in Rule 13. Thus the provisions construed by Supreme Court are in pari materia with Explanation 1(a) of Rule 57Q. Therefore, the aforesaid two judgments of the Supreme Court are directly relevant for the present purposes.
23. While construing the expression, "in the manufacture of goods," occurring in Notification 201/79, the Five Member (Larger) Bench of the Tribunal in Shri Ram Rayons v. CCE 1987 (30) E.L.T. 850 held as under:
"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. 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.
We note the submissions of the learned DR that the observations of the Supreme Court in this judgment were not made in a vacuum but in the context of Rule 13 and therefore, should not be made applicable to the expression, used in the said notification. We are not able to accept this view because the expression examined by the Supreme Court is similar to the expression used in the said notification itself. We therefore, have to respectfully take the observation of the Supreme Court into consideration to interpret the expression used in the manufacture, occurring in the said notification...."
24. In 1965 (16) S.T.C. 380, the Division Bench of Gujarat High Court was considering the question as to whether, humidifiers used in the textile mill to control the humidity in the atmosphere and to maintain certain humidity in the mills which is necessary for improving the quality of the yarn and preventing waste of yarn, which are absolutely necessary in the modern textile industry, would be covered by Entry 15 of Schedule C of Bombay Sales Tax Act, 1959. The said entry covered machinery used in the manufacture of goods. The High Court first concluded that humidifier is indeed a machinery. The discussion on this part of the matter is not relevant for our purpose. The High Court thereafter held that humidifer is indeed used in the manufacture of goods. It over-ruled the decision of the Tribunal which took the view that it is necessary for the assessee to show that humidifier was used in the actual process of manufacture of cloth with humidifier though essential to the modern textile industry is not used in the actual process of manufacture of cloth and therefore, is not covered by the said entry. The High Court held as under :
"But we cannot agree with him when he says that humidifiers are not used in the actual process of manufacture of cloth. Manufacture of goods means the process of converting raw materials into finished goods and whatever machinery is required for converting raw materials into finished goods would be machinery used in the manufacture of such goods. Every item of machinery which has a use in the manufacture of finished goods, which plays some role in the process of manufacture of finished goods and without which manufacture of finished goods would not be possible would be machinery used in the manufacture of such goods. Such machinery would be an essential and integral part of the plant which manufactures finished goods and would certainly satisfy the description that it is machinery used in the manufacture of finished goods. If this test be applied, it is clear that humidifiers are machinery used in the manufacture of cloth. It is evident from the finding given by the Deputy Commissioner of Sales-tax and accepted by the Tribunal that humidifiers are used by cotton textile mills in order to maintain certain humidity for the purpose of increasing the strength of yarn, avoiding breakages of yarn and improving the quality of yarn and they are essential to the modern textile industry. They play an important role in the manufacturing process in that they provide a particular humidity without which yarn would not acquire proper strength and there may be breakages in yarn affecting not only the quality of the yarn but also the smooth functioning of the ring frames. They are as essential to the manufacturing process as ring frames or looms and they are certainly machinery used in the manufacture of cloth. We are therefore, of the view that humidifiers are machinery used in the manufacture of cloth and must fall within Entry 15 of Schedule C."
25. In Tata Iron & Steel Co. Ltd. 1988 (33) E.L.T. 297, the Division Bench of Patna High Court was inter alia considering the question as to whether EOT cranes were eligible for exemption under Notification 118/75-C.E., dated 30-4-1975. That notification had the following proviso:
"Provided further that nothing contained in this notification shall apply to complete machinery manufactured in a factory and meant for production or processing any goods, even if they are intended for use in the same factory in which they are manufactured or in any other factory of the same manufacturer."
In para 29, the Court held as under :
"Question to be seen is whether the cranes to be used in the production or processing of goods. The cranes were meant for placement of heavy goods from one place to another. The 3 motion crane was designed to facilitate production of steel through those cranes as they had the capacity to remove goods at one stroke of the weight of 5/10 tonnes and over. The cranes were surely not meant for the maintenance of the duplex process steel smelting shop. It does not need much persuasion to hold that the cranes were part of the new production pattern. It is obvious therefore, that they were meant for production and processing of goods. Without these cranes with increased weight bearing capacity, the process of augmenting steel production may not have been fulfilled. In that view of the matter, the second proviso to the exemption clearly stands in the way of the petitioner claiming the exemption."
26. A contention has been raised by the assessees that the expression employed in Explanation 1(a) to Rule 57Q was indeed even wider than the expression construed by the Supreme Court in Indian Copper Corporation Ltd. and J.K. Spinning & Weaving Mills Co. Ltd. It was contended that while the aforesaid two judgments referred to Section 8(3)(b) containing the expression 'used in the manufacture or processing of goods', Explanation 1(a) to Rule 57Q refers to machine, machinery etc. used for manufacture, used for production or processing. It was contended that this expression, for the manufacture was even wider than the expression 'in the manufacture'. This aspect of the matter is conclusively supported by the. decision of the Supreme Court in Oblum Electrical Industries Pvt. Ltd. 1997 (94) E.L.T. 449 S.C. in which the Apex Court was construing the Customs Notification No. 116/88-Cus., dated 30-3-1998. That notification inter alia exempted 'materials required to be imported for the purpose of manufacture of products (hereinafter referred to as the resultant products or replenishment of materials used in the manufacture of resultant products, or both'. The Supreme Court in that context held as under:
"In the notification, two different expressions have been used namely, materials required to be imported for the purpose of manufacture of products and replenishment of materials used in the manufacture of resultant products, which indicates that the two expressions have not been used in the same sense. The expression materials required to be imported for the purpose of manufacture of products cannot be construed as referring only to materials which are used in the manufacture of the products. The said exemption must be given its natural meaning to include materials that are required in order to manufacture the resultant products. In that view, the exemption cannot be confined to materials which are actually used in the manufacture of the resultant product but would also include materials which though not used in the manufacture of the resultant product are required in order to manufacture the resultant product. Crystar beams imported by the appellant are materials which though not used in the manufacture of HT Porcelain insulators required for lightening arresters are materials which are required for producing the insulators in the kilns".
27. In that case, the Revenue relied on Clause (viii) of the Explanation to the Notification which referred to material used in the manufacture of the resultant product. In that context, the Supreme Court held as under :
"It is well settled principle of statutory construction that the explanation must be read so as to harmonise with and clear up any ambiguity in the main provision (See Bihta Cooperative Development Cane Marketing Union Ltd. and Anr. v. The Bank of Bihar and Ors. 1967 (1) SCR 848. The definition of materials in Clause (viii) of the Explanation must, therefore, be so construed as not to eliminate the distinction between the words materials required for the purpose of manufacture of products and the words materials used in the manufacture of the resultant products in the main part of the definition."
28. It is in the light of the above principles that the above cases have to be construed. In Indian Copper Corporation case, the Supreme Court held that the vehicles used for removal of the processed goods from the factory to the place of storage would be covered by the expression, "the goods intended to be used for manufacture or processing of goods!" The Supreme Court also held that cane baskets required for carrying coal and other materials used in the mining or manufacture of the goods are covered by the said expression. Laboratory fittings used for sample and analysis of ores and other materials in the mining operations and in the manufacture for sale is also held to be covered by the said expression. Only cane baskets used for transportation of refuse, stationery and medical supplies used in hospital were held to be not covered by the expression.
29. In J.K. Cotton Spinning & Weaving Mills Co. Ltd. case 1997 (91) E.L.T. 34, the Supreme Court in para 7 noticed the reasoning of the High Court which was also stressed by the Revenue before the Supreme Court that the goods intended for use in the manufacture of goods or processing of goods must be of necessity, goods used as ingredients or commodities in the creation of goods or which are directly and actually needed for turning out or making the goods. This was in express terms rejected in para 8 of the judgment. In para 10, the Supreme Court held that the expression 'in the manufacture of goods,' cannot be limited to process or production of goods only. The Court held that drawing and photographic materials are covered. Under the category of electricals, the Supreme Court covered electrical humidifiers, exhaust fans and electrical equipments and even electrical electrical lightings. However, electrical equipments not directly connected with the process of manufacture and office equipments like fans, coolers and air-conditioners were held to be not covered by Section 8(3)(b). Further in view of judgment of Supreme Court in Oblum Electrical Industries P. Ltd. v. CC, the expression employed in Rule 57Q is even wider than the expression contained in Section 8(3)(b) read with Rule 13. The aforesaid two judgments of the Supreme Court would apply with greater force to the present matter.
30. Further, in TISCO's case supra, the Patna High Court has held that material handling equipments like cranes are indeed items used for producing or processing of goods.
31. In the light of the above, the decision of the SRB in Shanmugaraja Spinning Mills P. Ltd. -1997 (89) E.L.T. 84 that humidifiers are not used in the manufacture of textiles would not be a proper view. The reasoning given in para 7 of the Tribunal's order was precisely the reasoning advanced by the Revenue before the Gujarat High Court in 1965 XVISTC 380 but which was not accepted by the High Court. Humidifier is also an item specifically held by the Supreme Court in J.K. Cotton Spg. & Wvg. Mills Co. Ltd. to be an item used in the manufacture of goods or processing of goods for sale. Further, in 1997 (89) E.L.T. 84, the attention of the Bench of the Tribunal was not invited to any of the aforesaid decisions of the Supreme Court including the decision in Indian Copper Corporation or J.K. Cotton Spg. and Wvg. Mills Co. Ltd., or the Gujarat High Court decision in Industrial Machinery Manufacture P. Ltd. case. The same applies to the decision of the SRB's decision in K Pharmachem Ltd. -1997 (21) R.L.T. 868, wherein also none of the aforesaid precedents have been brought to the notice of the Bench.
32. The first part of Explanation 1(a) of Rule 57Q refers to plant. There is no definition of the said expression in Central Excise Act or the Rules. The meaning of that expression was considered by the Supreme Court in AIR 1986 SC 338 - Scientific Engineering House P. Ltd. v. CIT. The decision arose in the context of the Income Tax Act, 1961. Section 43(3) of that Act had a very wide definition of plant. Still the Supreme Court referred to the various judgments dealing with different enactments where there was no definition of plant. The classic definition of "plant" as given by Lindley, L.J. in Yarmouth v. France at page 658 of that report, and as extracted in page 334 of the AIR reads as under:
"There is no definition of plant in the Act; but in its ordinary sense, it includes whatever apparatus is used by a businessman for carrying on his business -not his stock-in-trade which he buys or makes for sale; but all goods and chattels, fixed or movable, live or dead, which he keeps for permanent employment in his business."
The Supreme Court then summarised its conclusion as under :
"In other words the test would be: does the article fulfil the function of a plant in the assessee's trading activity? Is it a tool of his trade with which he carries on his business? If the answer is in the affirmative it will be a plant."
As already seen, though the above decision was rendered in the context of Section 43(3) of the Income Tax Act, 1961, which contained a very wide definition of the expression "plant", the above interpretation of the expression, "plant", was not because of any special or particular defintion of that expression in the Income Tax Act. Therefore, the test laid down by the Supreme Court in the above case would be relevant for construing the expression "plant" employed in Explanation 1(a) to Rule 57Q. Interestingly, even without reference to the aforesaid judgment of the Supreme Court, the Single Member Bench of this Tribunal in Valley Abrasives Ltd. v. CCE -1997 (91) E.L.T. 700 has held as under:
"6. Therefore, it has to be taken in the sense in which the trade generally understands it. "plant" is understood in the context of manufacture of goods, as a place where aggregate of machines, machinery equipment, etc. which produces or processes the goods are installed. I do not find any specific reason to restrict the meaning of the word plant in the context of the beneficial provision that Rule 57Q is. Keeping in view the general meaning of the word "plant", I agree with the learned Consultant that clauses (a) and (b) on their plain reading would also include the transformer...."
33. A reference has been made to the judgment of the Supreme Court in Indian Farmers Fertilizer Co-op. Ltd. -1996 (86) E.L.T. 177 (S.C.). In that case, the Supreme Court was interpreting Notification No. 187/61-C.E. Under the Notification, exemption was conferred to such raw naphtha as was used in the manufacture of ammonia provided such ammonia was used elsewhere in the manufacture of fertilizers. The Supreme Court inter alia considered raw naphtha which is used to produce ammonia which is used i.e. ammonia (used) in the effluent treatment plant. The question was whether the said raw naphtha can be said to be used in the manufacture of ammonia which, in turn, is used in the manufacture of fertilizer. The supreme Court held as under :
"The apparatus used for such treatment of effluents in a plant manufacturing a particular end product is part and parcel of the manufacturing process of that end-product. The ammonia used in the treatment of effluents from the urea plant of the appellants has, therefore, to be held to be used in the manufacture of urea and the raw naphtha used in the manufacture of such ammonia to be entitled to the said exemption."
Thus, the apparatus used for treatment of effluents was treated as part and parcel of manufacturing process of the end product.
34. In the light of the above, let us consider the contentions raised by the Revenue. The main contention is that Clause 1(a) to Rule 57Q relates to production machinery used for bringing about any change in any substance for the manufacture of the final product. This is contrary to the plain language of Clause 1(a). The first part of Clause 1(a) does not confine itself to machinery. Apart from machinery, it refers to machine, plant, tools or appliances etc. Secondly, the second leg of Clause 1(a) refers to three distinct expressions viz. (i) used for producing of goods for the manufacture of the final product (ii) used for processing of any goods for the manufacture of the final product and (iii) used for bringing about any change in any substance for the manufacture of the final product. When these three different and distinct expressions are used, it will not be possible and correct to construe the expression 'used for producing of any goods for the manufacture of the final product' as synonymous with 'used' for bringing about any change in any substance for the manufacture of the final product. Similarly, it would not be correct to construe the expression 'used for processing of any goods for the manufacture of the final product' as synonymous with 'used for bringing about any change in any substance for the manufacture of the final product. The contention of the Revenue that Clause 1(a) would confine itself to production machinery used for bringing about any change in any substance for the manufacture of the final product will also imply that the Supreme Court's decision in Indian Farmers Fertilizer Coop. Ltd. and/.K. Cotton Spg. & Wvg. Mills Co. Pvt. Ltd. case extending the coverage of Section 8(3)(b) to items such as motor vehicles and locomotives, cane baskets, laboratory fittings, electricals humidifier exhaust fan and similar equipments, would be wrong, but this obviously is not permissible. In fact, precisely this contention was raised by the Revenue in Gujarat High Court in the Industrial Machinery Manufacturers Pvt. Ltd. case and was rejected by the High Court.
35. It has been contended that producing means bringing into existence a new article from raw material and processing signifies an operation for bringing about any change in any substance for the manufacture of the final product. However, we are concerned with the meaning of the expression 'used for producing or processing'. The said expression would not, to use the language of the Supreme Court in J.K. Cotton Spg. & Wvg. Mills Co. Pvt. Ltd. be limited to ingredients or commodities used in the process or those directly and ' actually needed for turning out or the creation of the goods.
36. It is next argued that the principle of 'Noscitur a sociis' should be applied to construe the second part of the Explanation Clause 1(a) and so construed the expression, producing or processing of goods, would be synonymous with the phrase, 'bringing about any change in any substance'. The principle of 'Noscitiir a seeds' can have no application whatsoever in the present situation. Three different expressions have been employed by the legislature obviously intending to cover three different situations and categories and they cannot be construed as synonymous. The DR raises the plea that Explanation 1(a) is restrictive in nature and not wide, however, the question is not whether Explanation 1(a) is restrictive or wide, but what is the true meaning and scope of the actual language used by Explanation 1(a).
37. It has been contended by the Revenue that for an item to be eligible for credit, and to qualify as capital goods, it has to pass two tests. Firstly, the item should be a machine, machinery, plant, equipment, apparatus, tool or appliance. Secondly, it should be used for producing or processing of any goods or for bringing about any change in any substance for manufacture of the final product. There is no quarrel with this- proposition. The question is -what is the true meaning of the two stage expression employed.
38. It has been contended by the Revenue that in terms of Explanation 1(a), the item must have a direct nexus with the final product being produced. This contention is contrary to the decision of the Supreme Court in the Indian Copper Corporation case and J.K. Cotton Spg. & Wvg. Mills Co. Pvt. Ltd. case cited supra.
39. The matter may be considered in the light of the above. 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. It therefore, satisfies the definition of plant.
40. Similarly, the other items involved in these cases namely control panels, cables, welding electrodes, etc. will also qualify as capital goods under Rule 57Q and would be eligible for Modvat credit and we order accordingly.
41. In the light of the above, the issue as to whether the amendment effected in Notification 11/95, dated 16-3-1995 under Rule 57Q and Notification 14/96-C.E. dated 23-7-1996 is retrospective, becomes academic. We have to decide the matter according to the language of the provision as it stood at the material time. 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 asses-sees 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.
The appeals are disposed of in the above terms.