TMI Blog1996 (6) TMI 308X X X X Extracts X X X X X X X X Extracts X X X X ..... r the various appellants Shriyuts Lakshmi Kumaran, R.C. Gupta, Arun Mehta, S.K. Bagaria, K.K. Kapoor, T. Gunasekaran, G. Prabhakara Sastry, C. Willingdon and the Senior Departmental Representative, Sri Sanjeev Sachdeva. 2. The respondent in Appeal E.332/94 and the appellants in other appeals are manufacturers of excisable final products. They availed Modvat credit in respect of certain goods claimed as inputs as defined in Rule 57A of Central Excise Rules, 1944. The jurisdictional Assistant Collectors disallowed Modvat credit. In the case relating to appeal E.332/94, the Collector (Appeals) set aside the order, holding that the respondent was entitled to benefit of Modvat credit while the Collector (Appeals) in the other cases confirmed the orders disallowing the benefit of Modvat credit. In a few of the cases, Modvat credit was disallowed on the ground that the goods in respect of which credit was claimed were spare parts of machinery which attract the exclusion clause (i) of explanation to sub-rule (1) of Rule 57A of the orders. In some of the cases, it was held that the goods claimed to be inputs were not used in or in relation to the manufacture of final products. The Collect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to as inputs ) used in or in relation to the manufacture of the said final products and to utilise such credit towards payment of excise duty leviable on the final products under the Central Excises and Salt Act, 1944 (for short, the Act) or under any other Act as may be specified. The provision is subject to the provisions of the other Rules in the section and the conditions and restrictions that may be specified. Relevant portion of the Explanation to Rule 57A reads thus : Explanation :- For the purpose of this rule, inputs" includes - (a) xxx xxx xxx xxx (b) xxx xxx xxx xxx but does not include - (i) 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 in or in relation to the manufacture of final products; (ii) xxx xxx xxx xxx (iii) xxx xxx xxx xxx (iv) xxx xxx xxx xxx (v) xxx xxx xxx xxx" (Emphasis supplied) 5. The earliest decision of the Tribunal having a bearing on the question in controversy is Cominco Binani Zinc Ltd. v. Collector of Central Excise - 1990 (48) E.L.T. 283 (SRB). Claim for Modvat credit was made in respect of duty paid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roduct and not to mitigate the cascading effect of the duty paid on the machinery and as a corollary, the parts which are used in the machinery to make them functional are not entitled to the benefit of the scheme. These parts which are replaced from time to time are to be regarded as used in relation to the machinery and not in relation to the manufacture of the final products. Reliance was placed on the decisions of the Supreme Court in J.K. Cotton Spinning and Weaving Mills Co. Ltd. v. S.T.O. - AIR 1965 S.C. 1310 and Collector of Central Excise v. Eastern Paper Industries Ltd. - 1989 (43) E.L.T. 201 (S.C.) = 1990 (26) ECR 10. The Bench did not notice its own earlier decision in Cominco Binani Zinc Ltd. v. Collector of Central Excise - 1990 (48) E.L.T. 283. 7. The Eastern Regional Bench which took note of the decision in Andhra Pradesh Paper Mills Ltd. v. Collector of Central Excise - 1990 (50) E.L.T. 252 declined to follow it in Straw Products Ltd. v. Collector of Central Excise - 1992 (59) E.L.T. 572. The Bench also relied on the decision of the Supreme Court in J.K. Cotton Spinning and Weaving Co. Ltd. v. Collector of Central Excise - AIR 1965 S.C. 1310 and approved the earl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontext of the provisions of Sales Tax Act and the Rules framed thereunder. The Supreme Court held - 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. The Court gave the example of various processes raw cotton is subjected to before it is converted into yarn and yarn is converted into textiles and indicated that the processes would be regarded as integrated processes and included in the manufacture of cloth. The Court further observed as follows :- 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, be commercially inexpedient, goods intended for use in the process or activity as specified in Rule 13 will qualify for special ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e question was whether sodium sulphate could be said to have been used as Raw material in the manufacture of paper or paper board. The Court indicated that one of the valid tests is : that the ingredients should be so essential for the chemical processes culminating in the emergence of the desired end-product, that, having regard to its importance in and indispensability for the process, it could be said that its very consumption on burning up is its quality and value as raw-material. In such a case, the relevant tests is not its presence in the end-product, but the dependence of the end-product for its essential presence at the delivery end of the process. The ingredient goes into the making of the end-product in the sense that without its absence the presence of the end-product, as such, is rendered impossible. This quality should coalesce with the requirement that its utilisation is in the manufacturing process as distinct from the manufacturing apparatus. Referring to the decision in Deputy Commissioner of Sales Tax v. Thomas Stephen and Company Ltd. - 1988 (34) E.L.T. 416 (S.C.) = J.T. 1988 I S.C. 631 where it was held that cashew shells used as fuel in the kiln used f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... these articles remain in the liquid metal and balance forms part of the residue or slug. The Court noticed the wider connotation of the phrase in relation to used in Rule 57A of the Rules. It was indicated that indisputedly ramming mass, dolopatch mix and manganese peas are inputs within the meaning of the Rule. The true question according to the Court is - are the items inputs at all in respect of steel ingots?" and if the question is answered in the affirmative, the next question is are the items within the excluded inputs? The Court held - Analysing the meaning of inputs as provided in the explanation it would appear that everything is an input if it is (i) manufactured and used within the factory of production or (ii) used in relation to the manufacture of the final products, and, (iii) paints and packaging material. The exceptions relate to items which would otherwise have come within the inclusive definition of inputs. (Emphasis supplied) and The subject of the legislature appears to me to be to exclude from the genus of inputs, the species mentioned in the excluded categories because otherwise a manufacturer would be entitled to claim Modvat in respe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5 (78) E.L.T. 44 (Tribunal). 15. We may also refer to the decision of High Court of Madras in Ponds (India) Ltd. v. Collector of Central Excise - 1993 (63) E.L.T. 3. The appellant, manufacturer of cosmetics, used duty paid plastic granules to manufacture plastic containers and used the same as containers for the excisable final product, namely, cosmetics. The Court held that the cosmetic items are not marketable unless packed in containers which have to be treated as component part of the final product and that wider connotation should be given to the words goods used in or in relation to the manufacture of final product. Plastic granules would be component parts of the final product. The Court also relied on some of the chapter notes. 16. Under Rule 57A, inputs are not only goods used in the manufacture of final products, but also goods used in relation to the manufacture of final products. The same language is used in exclusion [clause] (i) of the explanation to the Rule. The words goods ..... used by him (dealer) in the manufacture or processing of goods occurring in Section 8(3)(b) of the Central Sales Tax Act and Rule 13 of the Rules have been held by the Supreme Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which are charged into furnace as fettling materials to dissolve and seal the crevices in the refractory walls of the furnace and are consumed in the process have been held to be goods used in relation to the manufacture of finished goods. The High Court explained that the exclusion clauses of the Explanation to Rule 57A relate to items which would otherwise have come within the definition of inputs. This would mean that machine, machinery and other goods referred to in exclusion Clause (i) would, but for the exclusion fall, within the ambit of the expression inputs that is, goods used in relation to the manufacture of finished products . The Court stated that it does not matter that the goods are used in the machinery or for the purpose of the machinery. In the absence of any contrary decision of the Supreme Court or any other High Court, the Tribunal is required to follow this decision of the High Court of Calcutta. It would be an act of Judicial indiscipline and impropriety not to follow the only decision of a High Court on this aspect as suggested by the Western Regional Bench in the order of reference reported in 1993 (68) E.L.T. 452. The contention of the assessee is sup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of Central Excise v. Bihar Caustic and Chemicals Ltd. - 1994 (72) E.L.T. 739 (Tribunal) ERB are correctly decided. (ii) Copper Wire : In one of the appeals, the goods stated to be inputs is copper wire used in the manufacture of metal containers. The appellant who manufactures metal containers, prints on the metal containers name and the other particulars as per the requirements of the customer. Thin sheets are cut according to required size and the blanks are formed into cylinder and welded. For the process of welding two copper wires are passed between the two weld wheels. A.C. current is generated in the weld wheels as a result of which heat is generated. The copper wire takes away the excess molten tin at the junction of the two ends of the tin and the heated soft edges of the tin sheets joined are together. The copper wire comes out at the other end with small particles of tin deposits. This copper wire cannot be used again and is disposed of as copper waste. It is stated that the Department has accepted the same as copper waste for the purpose of clearance on duty. The copper wire is not consumed in the course of manufacture. It becomes waste by deposit of particles o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... excluded from the purview of Rule 57A. Exclusion Clause (i) of the Explanation to Rule 57A excludes certain types of capital goods from its ambit. Capital goods are brought within the ambit of a scheme similar to Modvat scheme by Rule 57Q. Rule 57Q inter alia, allows credit of specified duty paid on capital goods (as defined therein) used by the manufacturer in his factory to be utilised towards payment of duty leviable on final products falling within the description specified in the annexure. `Capital goods as defined include, inter alia, machines, machinery, plant and equipment, apparatus, tools or appliances (all the goods specified in exclusion Clause (i) of the Explanation to Rule 57A used for producing or processing of any goods for bringing about any change in any substance for the manufacture of final products, and components, spare parts and accessories of the aforesaid machines and other capital goods used for the aforesaid purpose. Hence the contention that any understanding of Rule 57A as conferring Modvat benefit on specified duty paid on parts of machines or machinery, plant, equipment, apparatus, appliances, tools used not in the manufacture of machines, machinery ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p of parts or machines that are arranged to perform a particular operating or machining function. Plant : An engineering production facility, a factory, electric power station or the like. Tool : A portable and usually hard-held instrument that is used to increase the efficiency of a work effort. Words and Phrases, Permanent Edition - Vol. 7A : Apparatus : It means a collection or set of materials, implements or utensils for a given work, a complex device or machine or a set of tools, appliances, any complex instrument for a specific action or operation, machinery or mechanism. Appliance : is generally considered to be any house hold or office utensil, apparatus or instrument or machine that utilizes a power supply, especially electric current e.g. vaccum cleaners refrigeration, toaster, air-conditioner. Machine : is a mechanical contrivance that modifies, utilizes or applies energy or force for a useful purpose or function. It includes every mechanical device or contrination of mechanical powers and devices used to perform some functions or and produces ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e up for consideration at the hands of the Supreme Court in Rohit Pulp and Paper Mills Ltd. v. Collector of Central Excise - 1990 (47) E.L.T. 491 excluded five kinds of paper from the benefit of the exemption. It was found that four out of the five varieties of paper belong to the category of Industrial paper. In the context, the Court held that the noscitur a sociis principle was applicable. The principle is that when two or more words which are susceptible of analogous meaning are coupled together they are understood to be used in their cognate sense. They take, as it were, their colour from each other, that is, the more general is restricted to a sense analogous to the less general. Associated words take their meaning from one another under this principle, according to which, the meaning of a doubtful word may be ascertained by reference to the meaning of words associated with it. When certain essential features or attributes are invariably associated with the words under consideration as understood in the popular and conventional sense, it is the colour of these attributes which is taken by the other words used in the definition though their normal import may be much wider. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... peals are to replace worn-out parts or parts which require replacement. In the example cited, credit will be taken of the duty paid on the parts of the machine and used to pay duty on the machine manufactured out of the parts but machine as input is excluded by Clause (i). If, however, the parts are brought in C.K.D. condition, credit of duty paid on the C.K.D. packages is not used to pay duty on the machine since there is no manufacture of any machine and credit cannot be used for paying duty on the final product since C.K.D. package is itself treated as machine and machine as input is excluded under exclusion Clause (i). 25. The purpose of Rule 57A is to grant benefit of Modvat credit to manufacturers using specified goods in and in relation to the manufacture of specified final products. What could be the particular object intended to be achieved by introducing the exceptions in the exclusion Clause (i)? The clause excepts not one but a group of items. If the items were totally dissimilar with no common factor or thread, the items can be given their widest meaning. But almost all the items can be brought under an intelligible classification. The Government must have thought ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same respective meaning as in the Act or Regulation conferring the power. We fail to see how it can be asserted that Rules of Interpretation, Chapter notes, Tariff headings and Sections contained in the Tariff Act are irrelevant in the context of understanding terms and expressions used in Rules or notifications. Relevance of such aids of interpretation depends upon the context, the clarity or otherwise of the language used in the provision under consideration, the extent to which aids of construction are needed, and whether the aid so available is repugnant in the context and other relevant factors. It cannot be dogmatically asserted that in all cases, such aids of construction are relevant or safe guide. Relevance or otherwise of these Rules and Section and Chapter Notes or any aid of construction depends on the context arising in a given case. 28. An examination of various tariff items and Rule of Interpretation Section Notes and Chapter Notes in Schedule I to the Central Excise Tariff Act reveals that the Parliament, while dealing with various kinds of machines and the like, specifically provided for parts and accessories and the Rules of Interpretation were framed to pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Rule 57A of the Rules. Such inputs are not excluded by virtue of the exclusion Clause (i) of the Explanation to the Rule. (c) Copper wire used in the manufacture of metal containers is an eligible input under the said Rule and is not an `appliance and is not excluded by the exclusion Clause (i) of the Explanation to the Rule. (d) Appeal No. E.332/94 is dismissed; Appeal Nos. E./21/88, 739/90, 601/90, 19/91, 1713/94, 1714/94, 1435/95, 2489/94, 1244/89, 1116/95, 49/92, 106/92, 1901/92, 865/93 and 866/93 are allowed and orders impugned in these appeals are set aside. Dated : 4-6-1996 Sd/- (K.S. Venkataramani) Member (T) Sd/- (Justice U.L. Bhat) President 31. [Contra per : Lajja Ram, Member (T)]. - With due respects, I am not able to persuade myself to agree with the order proposed. I record my order as under - 32. The main issue for consideration in this group of appeals is, whether the parts of the paper making machinery are eligible for Modvat credit under Rule 57A of the Central Excise Rules, 1944 (hereinafter referred to as the `Rules ), when machinery as such is not s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... luded during the preceding financial year in the assessable value of the final products under Section 4 of the Act. (4) Cylinders for packing gases. (5) Plywood for tea chests, or (6) Bags or sacks made out of fabrics (whether or not coated, covered, or laminated with any other material) woven from strips or tapes. (Source Central Excise Manual, Vol. 1, 15th Edition as on 1-8-1992, published by the Directorate of Publications, Customs and Central Excise, New Delhi). These exclusions are also subject to change from time to time. 34. In these proceedings, we are concerned with the expressions machines, machinery, plant, equipment, apparatus, tools or appliances used for producing or processing of any goods or for bringing out any change in any substance in or in relation to the manufacture of the final products. In view of the Explanation and in view of the specific exclusions, these items are not inputs for the purposes of Rule 57A. The issue for consideration is, as to what is the scope of these terms : machines, machinery, plant etc.; whether the constituent parts of these machines, mac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cture plays no part in the carrying on of those activities but merely constitutes a place within which they are carried on, it cannot be regarded as a plant. 37. In the case of Commissioner of Income Tax v. Sri Krishna Bottlers Pvt. Ltd., 1989 ITR Vol. 175 at page 154, the Andhra Pradesh High Court had observed that the word `plant is to be given a very wide meaning. The thing need not be part of the machine used in the manufacturing process but could be merely an apparatus used in carrying on the business but having a degree of durability. It may have a passive or an active role. It was added by the Hon ble High Court that a piecemeal approach is not permissible and the entire matter must be considered as a single unit unless, of course, the component parts can be treated as separate units having different purposes, and that the functional test is a decisive test. Some extracts from that judgment are given below : A third principle was sought to be brought in by the decision in Hinton v. Maden and Ireland Ltd. [1960] 39 ITR 357 (HL), as a corrollary to the first one in Yarmouth v. France [1887] 19 QBD 647, namely, the principle that the thing need not be part of the machine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TR 62 (HL) and CIT v. Taj Mahal Hotel [1971] 82 ITR 44 (SC). Tulzapurkar J. observed that the definition of plant was very wide and that plant was not necessarily confined to an apparatus which is used in mechanical operations or processes or in industrial business. The article must have a degree of durability and (at p. 96). 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, even though the articles had no part in the mechanical operation though, owing to technological advances, they might or would, in course of time, become obsolete, and approved the exhaustive judgment of P.D. Desai J. sitting with Diwan C.J. in CIT v. Elecon Engineering Co. Ltd. [1974] 96 ITR 672 (Guj), a decision which was also directly affirmed by the Supreme Court in 1987 in CIT v. Elecon Engineering Co. [1987] 166 ITR 66. 38. In so far as the machines and machinery are concerned, they are also items of wide import. Six types of simple machines are; the lever, the wheel and axle, the pulley, the inclined plane, the wedge and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... operated by turning the main wheel by hand, and that the revolutions to which the main wheel is put to, are transmitted to other smaller wheels and spinning achieved as in the case of a Charaka . The Mysore High Court, applying the definition of machinery given in the Privy Council decision aforesaid, held that the said contrivance called cottage basin is a machinery. In Industrial Machinery Mfgrs. Pvt. Ltd. v. State of Gujarat [1965] 16 STC 380, the Gujarat High Court had to consider whether humidifiers used by cotton textile mills installed to maintain a certain humidity for the purpose of increasing the strength of yarn, avoiding breakages of yarn and improving the quality of yarn and which are essential to the modern textile industry, are machinery within the meaning of a particular entry in the Bombay Sales Tax Act. It was found that without the humidifiers it was not possible for any textile mill to run according to the modern technique. Again, applying the definition evolved by the Privy Council in the aforesaid case, it was held that humidifiers are machinery. The reasoning behind the said conclusion appears from the following observations (at p. 384) : Manu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ght in loose condition and assembled on the site by the suppliers. Steam pipes were fitted below the tables so as to supply the necessary heat for purposes of drying the prints instantaneously. It was also found that there was a machine for mixing colours mechanically so as to obtain the necessary consistency of colours. It was noted that the cloth is spread on the tables and with the help of screen print frames by moving hand-rolls, necessary designs are imprinted and there is an instantaneous drying of the printing on the cloth. In other words, the table supplied by the assessee became an integral part of the machinery which was employed in screen printing. In the circumstances, it was held that having regard to the size of the tables, the object for which they were sold and the use to which they were put and more particularly having regard to the fact that the tables had been fitted with steam pipes acting as instantaneous driers, the entire assembly of the table, pipes, screen printing and the rolls was nothing else but a machinery. It was further observed that some solid structure with no moving parts cannot be treated as machinery. 40. The final products - paper and paper b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d and all of them had to be replaced sooner or later. 42. To make the paper sheet, a device called the Head Box spreads a mixture of water and fibres across the wire, a continuously moving screen. As the wire moves along the paper making machine called the Fourdrinier machine, also twin-wire machines, cylinder machine (for heavy paper and paper board), water drains off leaving a mat of fibres on the surface of the wire. Suction devices help to drain the water through the wire. When the mat is about 1/5 fibre and 4/5 water, the sheet has enough strength to be removed from the wire. The sheet then passes between large press rolls that squeeze water from the sheet until it is about 1/2 fibre and 1/2 water. Most of the remaining water is removed as the sheet passes over steam heated cylinders. Chemical bonds that hold the finished sheet together form during the drying process. The dried sheet may be smoothened by pressing it between the cylinders of a calendar stack. It is then wound into rolls at the reel. 43. There is no doubt that the goods felt, phosphorous berge, stainless steel wire, cloth mesh, dandy cloth etc. are not used directly in the manufacturing process, but particip ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment and other structural fittings which are used in the factory in which the goods are produced would not have to be allowed the benefit of the input duty relief under the Modvat scheme. In the case of Shimoga Steels Ltd. v. CCE - 1993 (67) E.L.T. 666 (Tribunal), the Tribunal had held that Tundish board used for the protection of the refractory bricks as a lining material for the furnace was a part of the furnace and would be taken to have been used in relation to the equipment for the manufacture of steel and for that reason benefit of Modvat credit could not be allowed thereon. In the case of Associated Cement Company Ltd. v. CCE - 1991 (55) E.L.T. 415 (Tribunal), the Tribunal had held that the benefit of Modvat credit could not be extended to goods in the nature of machines, appliances, tools, equipment etc. as also goods used in relation to the apparatus as distinct from the goods used in relation to the manufacture. 44. The issue before the Hon ble Calcutta High Court in the case of Singh Alloys Steel Ltd. v. Assistant Collector of Central Excise, - 1993 (66) E.L.T. 594 (Cal.), was entirely different then the issue in these group of appeals. The Calcutta High Court had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of India - 1994 (72) E.L.T. 805 (SC), the parts go with the machines. It was contended before the Hon ble Supreme Court that with regard to the ball bearings there was no statutory duty on the parts. The Hon ble Supreme Court held that even when there was no specific mention of parts and components of ball and roller bearings, they were not excluded from the purview of the levy. Similarly, in the case of Ballarpur Industries Ltd. v. Collector of Customs, Madras - 1995 (75) E.L.T. 6 (SC), it had been held that the machine part Granite Press Roll fitted with mild steel shell and end-plates and its cavities filled with concrete were a part of the machinery for making or finishing cellulosic pulp paper or paper board and that it was required to be classified with that machine. In the case of Quality Steel Tubes (P) Ltd. v. Collector of Central Excise, U.P. - 1995 (75) E.L.T. 17 (SC), the Hon ble Supreme Court had held that the plant and machinery embedded to earth was not excisable, although certain items of the plant and machinery were purchased from the market and installed to form part of the tube mill. Various components were purchased from the market and these were assembled and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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