Customs, Excise and Gold Tribunal - Delhi
Commissioner Of Central Excise vs Modi Xerox Limited on 13 November, 1996
Equivalent citations: 1997(90)ELT214(TRI-DEL)
ORDER K. Sankararaman, Member (T)
1. Commissioner of Central Excise, Meerut has filed this Reference Application under Section 35G of Central Excise Act seeking the following question to be referred to the High Court as question of law arising from the Tribunal's Order No. A/1244/96-NB, dated 23-4-1996 :
Whether Modvat Credit can be allowed on capital goods which are not mentioned in the Explanation (a) to (c) of Rule 57Q of Central Excise Rules, 1944 or which are contrary to the spirit of the Modvat Rules framed under Notification 4/94, dated 1-3-1994.
2. The facts involved in the matter, as considered in the Tribunal's order which has given rise to the present Reference Application are narrated below.
3. The respondents are manufacturers of photo-copiers and had taken Modvat credit in respect of Chilled Water Coil and Weighing Machine under Rule 57Q of Central Excise Rules, 1944. This was disallowed by the Assistant Collector of Central Excise, Rampur vide his Order-in-Original dated 6-1-1995 On the ground that these were not capital goods under Rule 57Q. This order was set aside by the Commissioner of Central Excise (Appeals), Ghaziabad on appeal by the respondents herein who held that the definition of capital goods under Rule 57Q is wide enough for taking within its fold all types of machinery, equipment etc. used for producing the goods. The chilled water coils are used for Air Handling Unit meant for bringing down the temperature in the coating room and hence the chilled water coils are covered under the definition of capital goods in the Explanation under Rule 57Q. The weighing machine being used in weighing the raw material was also held to fall in the said explanation. This decision was challenged by the department before the Tribunal which led to the passing of the order upholding the appellate order of Commissioner (Appeals). Hence the present Reference Application.
4. Shri Y.R. Kilania, learned Departmental Representative submitted that the goods in question are not eligible for Modvat Credit under Rule 57Q and pleaded that the questions raised in the application be referred to the High Court.
5. The argument was opposed by Shri M.P. Devnath, learned counsel for the respondents. He supported the Tribunal's order which he pointed out had taken note of the judgment of the Gujarat High Court in Industrial Machinery Manufacturers Pvt. Limited v. State of Gujarat reported in 1965 Vol. XVI Sales Tax Cases 380 wherein it was held that humidifiers are machinery used in the manufacture of cloth. The learned counsel also cited the following decisions in support of his plea that the Tribunal's decision is correct in law as the items in question merit consideration as goods used in the manufacture of final products :
(i) Tata Iron & Steel Company v. Union of India - 1988 (33) E.L.T. 217 (Patna).
(ii) CCE v. Rajasthan State Chemical Works -1991 (55) E.L.T. 444 (S.C.)
(iii) Avery India Limited v. Commercial Tax Officer -1983 Vol. 52 Sales Tax Cases 297.
He concluded his argument with the plea that the Reference Application be dismissed as no question of law has arisen out of the Tribunal's order.
6. I have considered the submissions and perused the record. Rule 57Q of Central Excise Rules under which the respondents had taken the disputed credit provides for allowing of credit of specified duty paid on capital goods used by a manufacturer in his factory to be utilised for payment of duty on the final products. The term capital goods is defined in the Rule as meaning not only 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 but also components, spare parts and accessories of the aforesaid machines, machinery and others.
7. It has come out in the order-in-appeal that the chilled water coils in the main component used in the air handling unit for controlling the temperature of the coater room and that without maintaining proper temperature of the coating room, photoreceptor drum cannot be manufactured. The chilled water coils are component parts of the air handling unit which is a machine vised for producing of the photoreceptor drum. The Tribunal's decision accepting the finding of the Collector (Appeals) follows the ratio of the Gujarat High Court decision in the Industrial Machinery Manufacturers Pvt. Limited case referred to earlier. It was held therein that humidifiers used in Cotton Textile Mills 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 breakes in yarn affecting not only the quality of the yarn but also the smooth function of the ring frames. It was held that they are as essential to the manufacturing process as ring frames or looms and they are certainly machinery used in the manufacture of cloth. In coming to this finding, the High Court applied the test that every item of machinery which has a use in the manufacture of finished goods and without which manufacture of finished goods would not be possible would be machinery used in the manufacture of finished goods. Such machinery would be an essential and integral part of the plant which manufactures finished goods and would satisfy the description that it is machinery used in the manufacture of finished goods. This decision will squarely apply to the present case as has been held in the order of the Tribunal.
8. The other item in question is weighing machine used for weighing the raw materials and the products. Weighing of the raw materials is an essential requirement in the manufacture of the required product. The judgment of the Calcutta High Court in Avery India Limited v. The Commercial Tax' Officer cited by the learned Counsel is relevant in this regard. It was held in the said judgment that weighing and testing machines are integrally connected with the ultimate production and that but for that process manufacture or processing of goods would fall within the expression "in the manufacture of goods". In the Patna High Court judgment in the case of Tata Iron & Steel Co. Limited v. Union of India, cranes used for placement of heavy goods from one place to another in the factory were held to be not eligible for the benefit of Notification 118/75, dated 30-4-1975 which was specifically not made applicable to machinery meant for production or processing of any goods. In the Supreme Court judgment in Rajasthan State Chemical Works case, it was held that use of power in pumping of lime into sail pans and the lifting of coke and limestone with the aid of power amounted to use of power in the process of manufacture. The Tribunal's decision in the present case that the Chiller Water Coils and Weighing Scales were used in the producing or processing of goods is in line with the above mentioned judgments. The order does not give rise to any question of law requiring a reference to the High Court. The Reference Application is dismissed.