TMI Blog2016 (7) TMI 1073X X X X Extracts X X X X X X X X Extracts X X X X ..... assed by Customs, Excise and Service Tax Tribunal, Chennai - 600 006, confirming the order of both original and Appellate Authorities, disallowing Cenvat credit on welding electrodes used by the appellant in their factory. 2. Short facts leading to the appeal are that M/s.National Co-operative Sugar Mills Ltd, is engaged in manufacture of sugar, falling under Chapter Heading No.1701 of the Central Excise Tariff Act, 1985. Based on the information gathered by the Divisional Preventive Unit that M/s.National Co-operative Sugar Mills Limited are availing Cenvat credit wrongly, on welding rods/electrodes and asbestos sheets, the officers attached to the Divisional Preventive Unit, Dindigul Division II, visited the factory on 05.01.2007 and conducted verification. Finding that the appellant has availed Cenvat credit on welding rods/electrodes and asbestos sheets, a show-cause notice dated 02.02.2007 was issued by the Adjudicating Authority, proposing to disallow Cenvat credit on welding rods/electrodes used by the appellant. The Adjudicating Authority also proposed to disallow Cenvat credit, on asbestos sheets, used by the appellant for roofing purposes. In the Adjudicatory Notice, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... juice which emerges at the crushing stage is moved via M.S.pipes to syrup stage. Here, the acidic levels are high. Continuous passage of juice through pipes results in corrosion of pipes and eventually cracking of pipes. If the situation is allowed to continue, holes would develop affecting production, as the juice cannot pass from one stage to another. Therefore, welding electrodes are used to weld together cracks and holes, which may develop in M.S.Pipes. At syrup stage, juice is converted into syrup. Juice has to be kept in storage tanks which may develop cracks. Here again, welding electrodes are used. At the stage of pan, syrup is moved to the pan via M.S.pipes. In the pan, sugar crystals are grown. At this stage also, welding electrodes are used to keep M.S.Pipes in good condition, otherwise, production would be affected. At the centrifugal stage, molasses is separated and removed leaving the sugar crystals behind. At this stage also, there are storage tanks which store the mixture of molasses and crystal. This is because of the acidic nature of substance, corrosion may develop in storage tanks. The mixture of molasses and crystal have to be first stored, before being release ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s in dispute, namely, welding electrodes, wires, cables etc. were not capital goods, within the meaning of explanation to Rule 57Q of the Central Excise Rules, 1944, 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 were not such goods and hence modvat credit was denied on welding electrodes. But the Tribunal rejected the stand of the revenue. 11. Inviting attention of this court to the meaning of the word 'capital goods' in Rule 57Q of the Central Excise Rules, 1944, Mr.N.Prasad, learned counsel for the appellant further submitted that 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. 12. He further submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lls Co. Ltd. vs. Sales Tax Officer reported in 1997(91) E.L.T.34 (S.C.), in Ambuja Cements Eastern Ltd. vs. Commissioner of Central Excise, Raipur reported in 2010 (256) E.L.T. 690 (Chhattisgarh), wherein, the High Court of Chhattisgarh held that welding electrodes used for repair and maintenance of plant and machinery, are eligible for Cenvat credits, both as capital goods, as well as inputs. At this juncture, we also deem it fit to consider the Judgment of Chhattisgarh High Court, as to how the decision in SAIL case has been distinguished. At Paragraph Nos.13, 14, 16, 17, 21 and 22 and ultimately, at paragraph 23, relying on the decision of the Rajasthan High Court in Hindustan Zinc Ltd. v. Union of India reported in 2008 (228) E.L.T. 517 (Raj.), Commissioner of Central Excise vs. India Cements Limited reported in 2009 (238) E.L.T. 411 (Mad.) and the decision of the Delhi Tribunal in Birla Jute Industries Limited reported in 2002 (139) E.L.T. A93, and subsequently, confirmed by the Hon'ble Apex Court, the Chhattisgarh High Court, allowed the appeals of the assessee, and answered the substantial question of law, raised therein viz., whether the welding electrodes used in re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essing of the goods would be commercially inexpedient, goods required in that process would, fall within expression in the manufacturing of goods . 14. The Madras High Court in India Cements Ltd., while dealing the similar issue, relying upon the decision of the Supreme Court in Jawahar Mills Ltd. and Commissioner v. Birla Jute Industires Ltd., decided the question of law in favour of the assessee and held that the Tribunal is correct in holding that the welding electrodes used for repairs and maintenance are covered under the definition of capital goods in terms of Rule 57Q of the Central Excise Rules, 1944. 16. The northern Bench of the Tribunal, New Delhi, in the matter of Birla Jute Industries Ltd., held that Modvat credit is admissible for Electrodes and Calibration Gas Mixture (welding equipments), but not admissible for explosives under Rule 57A of the Central Excise Rules, 1944. Civil Appeals preferred by the revenue against the above order were again dismissed by the Supreme Court with an observation that the civil appeals have to be dismissed in view of the judgment of this Court in Jawahar Mills Ltd. (Commissioner v. Birla Jute Inds. Ltd.) 17. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Gas Mixture (Welding equipments), but not admissible for explosives under Rule 57A of the Central Excise Rules, 1944, Civil appeals preferred by the revenue have been further dismissed by the Supreme Court. It is settled law that refusing of special leave to file appeal by a non-speaking or speaking order does not attract the doctrine of merger, whereas where an award, appeal or revision is provided against the order passed by the Court, Tribunal or any other authority before a superior forum and such superior forum modifies, reverses or affirms the decision put in issue before it, the decision by the subordinate forum merges in the decision by the superior forum and it is the latter which subsists, remains operative and is capable of enforcement in the eye of law, as held by the Supreme Court in Kunha Yammed. 23. On the basis of aforesaid discussions, relying upon the decision of the Rajasthan High Court in Hindustan Zinc Ltd., Madras High Court in India Cement Ltd., and Delhi Tribunal in Birla JUte Industries Ltd., which have been subsequently, affirmed by the Supreme Court, we allow both the appeals, set aside the impugned orders and answer the substantial question o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Delhi v. M/s.Ballarpur Industries Ltd. reported in (1989) 4 SCC 566 the difference between the expression used in the manufacture and used as input (raw material) was highlighted. In that judgment, it was held that undoubtedly the said two expressions are distinct and separate, but, when an ancillary process (like electricity generation) aids the making of an end product, then, the ancillary process gets integrally connected to the end product. In the said judgment, this court applied what is called as the dependence test . It may, however, be noted that in the definition of input the expression used in or in relation to the manufacture of final product is not a standalone item. It has to be read in entirety and when so read id reads as used in or in relation to the manufacture of final product whether directly or indirectly and whether contained in the final product or not . These words whether directly or indirectly and whether contained in the final product or not indicates the intention of the legislature. What the legislature intends to say is that even if the use of input (like electricity) in the manufacturing process is not direct but indurect still such an it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al product on account of the use of the expression used in or in relation to the manufacture of final product . Similarly, we are of the view that consideration such as input being used as packing material, input used as fuel, input used for generation of electricity or steam, input used as an accessory and input used as paint are per so also not relevant. All these considerations become relevant only when they are read with the expression used in or in relation to the manufacture of final product in the substantive/specific part of the definition. In each case it has to be established that inputs mentioned in the inclusive part is used in or in relation to the manufacture of final product . It is the functional utility of the said item which would constitute the relevant consideration. Unless and until the said input is used in or in relation to the manufacture of final product within the factory of production, the said item would not become an eligible input. The said expression used in or in relation to the manufacture have many shades and would cover various situations based on the purpose for which the input is used. However, the specified input would become eligible for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar that welding electrodes used for repair and maintenance of machineries, in relation to manufacture of the final product, namely sugar, is eligible for Cenvat credit. 19. Though Mr.A.P.Srinivas, learned Senior Standing Counsel for Central Excise made submissions to sustain the order of the Tribunal impugned before us, in the light of the discussion and decisions extracted, directly applicable to the case on hand, we are not inclined to accept the same. 20. The substantial question of law raised in the appeal Whether the Hon'ble Customs, Excise and Service Tax Appellate Tribunal committed an error or law in disallowing the Cenvat Credit on welding rods/electrodes used by the Appellants when, in fact, the same were used in and or in relation to manufacture of the final produce as required by Rule 2(k) of the Cenvat Credit Rules, 2004 , is answered, in the affirmative, in favour of the appellant/assessee. In the result, the Civil Miscellaneous Appeal is allowed. Impugned Final Order No.939/09 dated 07.08.2009 passed by the Customs, Excise and Service Tax Appellate Tribunal, South Zonal Bench, Chennai, is set aside. However, there shall be no order as to cost. - - ..... X X X X Extracts X X X X X X X X Extracts X X X X
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