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M/s Jayaswal Neco Ltd. Versus Commissioner of Central Excise, Raipur

2015 (4) TMI 569 - SUPREME COURT

MODVAT / Cenvat Credit - Capital goods - railway track material used for handling raw materials, processed goods - goods "in connection with" manufacture of or "in relation to" manufacture - Held that:- It follows from the bare reading of the Rule 57Q that for the purpose of allowing credit on specified duty paid on the capital goods, such capital goods are to be used by the manufacturer in his factory and are to be utilised for the purpose of manufacturing of final product. The explanation give .....

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in any substance for the manufacture of final product, it would qualify as 'capital goods' and MODVAT credit thereon would be permissible. - In the process, the court also explained that there is no warrant for limiting the meaning of the expression "in the manufacture of goods" to the process of production of goods only. In the opinion of the court, the expression "in the manufacture" takes within its compass, all processes which are directly related to the actual production. It noted tha .....

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he Commissioner that in spite of taking note of the aforesaid use of the railway tracks and accepting the same as correct, the Commissioner denied the relief to the appellant on an extraneous ground, i.e., railway tracks were used for other purposes as well, namely, apart from conveying hot metal and hot pigs, it was used for carrying raw materials and finished goods as well. This can hardly be a ground to deny the relief inasmuch as by incidental use of the railway tracks for some other innocuo .....

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1964 (10) TMI 2 - SUPREME COURT OF INDIA]. It is clear that the railway tracks are installed not only within the plant, but the main objective and purpose for which the capital expenditure on laying these railway tracks is incurred by the appellant is for transporting hot metal in ladle placed on ladle car from blast furnace to pig casting machine through ladle car where hot metal is poured into pig casting machine for manufacture of pig iron. It is clear from the above that the use of railway t .....

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the Rules or not. The order of the CEGAT is stoically silent. It has affirmed the order of the Commissioner by simply observing that the Commissioner has arrived at the conclusion that these goods are not being used directly or indirectly for producing or processing the goods or for bringing about any change for the manufacture of the final product. - we set aside the order of the Commissioner as well as of CEGAT insofar as it pertains to item "railway track material used for handling raw materi .....

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a, Adv. For the Respondent : Mr. K. Radhakrishnan, Sr. Adv. Mr. Sanjai Kumar Pathak, Adv. Mr. T. C. Sharma, Adv. Ms. S. Manchanda, Adv. Mr. B. Krishna Prasad, Adv. JUDGMENT A. K. Sikri, J. This appeal arises out of the judgment/ final order dated 30.04.2003 passed by Customs, Excise and Gold (Control) Appellate Tribunal, New Delhi (hereinafter referred to as 'CEGAT') whereby the Tribunal has dismissed the appeal of the appellant thereby confirming the order of the Commissioner insofar as .....

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under Rule 57Q of the Rules. The respondent-authority had issued two show cause notices thereby proposing to deny the appellant the MODVAT credit availed by them under Rule 57Q on the following items: - S. No. Items on which credit denied Credit amount (Rs.) 1. Pipes & fittings used outside the plant for bringing water from river Kharoon 15,83,738 2. Railway track material used for handling raw materials, process goods 16,59,987 3. HDPE Tarpaulin used to avoid leakage of water from water re .....

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in respect of certain capital goods was dropped. At the same time, the MODVAT credit on the aforesaid four items was denied by the Commissioner. The appellants filed appeal against the said order before the CEGAT and the CEGAT has affirmed the order of the Commissioner thereby dismissing the appeal of the appellant. In the present appeal preferred by the appellants against the order of the CEGAT, the relief is confined to item (b) above alone, namely, in respect of railway track material used fo .....

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ll apply to finished excisable goods of the description specified in the Annexure below (hereinafter referred to as the "final products") for the purpose of allowing credit of specified duty paid on the capital goods used by the manufacturer in his factory and for utilising the credit so allowed towards payment of duty of excise leviable on the final products, or as the case may be, on such capital goods, if such capital goods have been permitted to be cleared under rule 57S, subject t .....

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acture 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 abo .....

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ecified duty paid on the capital goods, such capital goods are to be used by the manufacturer in his factory and are to be utilised for the purpose of manufacturing of final product. The explanation gives the meaning of 'capital goods'. As per clause (a) thereof, machines, machinery, plants, equipment, apparatus, tools or appliances which are used for producing or processing goods or in bringing about any change in any substance for the manufacture of final product are to be treated as & .....

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the purpose stated therein. A direct answer to this question is given by this Court in M/s. J. K. Cotton Spinning & Weaving Mills Co. Ltd. v. Sales Tax Officer, Kanpur and another [1965 (1) SCR 900]. In this case, the test which was enunciated by the Court is: 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 impossible or commercially inexpedient, goods required in that process .....

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ssion "in the manufacture or processing of goods for sale" appearing in Section 8(3)(b) came up for interpretation. Section 8(3(b) authorises the Sales Tax Officer to specify goods intended for use by the dealer 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. Rule 13 provides that such goods must be intended for use in the manufacture or processing of goods for sale or in mining or generati .....

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the process or activity as specified in Rule 13 will qualify for special treatment. This is not to say that every category of goods "in connection with" manufacture of or "in relation to" manufacture, or which facilitates the conduct of the business of manufacture will be included within Rule 13. 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 act .....

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ng the meaning of the expression "in the manufacture of goods" to the process of production of goods only. In the opinion of the court, the expression "in the manufacture" takes within its compass, all processes which are directly related to the actual production. It noted that goods intended as equipment for use in the manufacture of goods for sale are expressly made admissible for specification. The court further marked that drawing and photographic materials falling within .....

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or may not be integrally connected with the ultimate production of goods. To exemplify the same, the court noted the use of building materials as well as electronics goods, by pointing out the aforenoted distinction in the following manner: "Building materials including lime and cement not required in the manufacture of tiles for sale cannot, however, be regarded within the meaning of Rule 13, as raw materials in the manufacture or processing of goods or even as plant". It is true that .....

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re of goods. The Legislature has contemplated that the goods to qualify under s. 8(3)(b) must be intended for use as raw materials or as plant, or as equipment in the manufacture or processing of goods, and it cannot be said that building materials fall within this description . The High Court was, therefore, right in rejecting the claim of the Company in that behalf. The expression "electricals" is somewhat vague. But in a factory manufacturing cotton and other textiles, certain elect .....

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ent" should fall within the terms of Rule 13, it must be an ingredient of 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 expres .....

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t. In the instant case, the manner in which railway track materials have been used by the appellant was explained by the appellant before the Commissioner and veracity thereof was accepted by the Commissioner. Therefore, without any fear of contradiction, we may note the exact process that is involved : "These railway tracks used in transporting hot metal in ladle placed on ladle car from blast furnace to pig casting machine through ladle car where hot metal is poured into pig casting machi .....

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talled railway tracks within the plant which is a handling system for raw material and processed material. The aforesaid process squarely meets the test laid down by this court in M/s. J. K. Cotton Spinning & Weaving Mills Co. Ltd.'s case. It is clear that the railway tracks are installed not only within the plant, but the main objective and purpose for which the capital expenditure on laying these railway tracks is incurred by the appellant is for transporting hot metal in ladle placed .....

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in spite of taking note of the aforesaid use of the railway tracks and accepting the same as correct, the Commissioner denied the relief to the appellant on an extraneous ground, i.e., railway tracks were used for other purposes as well, namely, apart from conveying hot metal and hot pigs, it was used for carrying raw materials and finished goods as well. This can hardly be a ground to deny the relief inasmuch as by incidental use of the railway tracks for some other innocuous purpose, it does .....

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