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The Union of India Versus M/s Aditya Cement & Anr.

D.B. CIVIL CENTRAL EXCISE APPEAL NO.05/2005 - Dated:- 8-11-2005 - HON'BLE MR. JUSTICE RAJESH BALIA HON'BLE MR. JUSTICE R.P. VYAS Mr. V.K. Mathur for the appellant. Mr. Rajendra Mehta for the respondent JUDGMENT (Per Hon'ble Mr. Rajesh Balia, J.) Heard learned counsel for the parties. This appeal is directed against the order of learned Customs, Excise and Gold (Control) Appellate Tribunal, New Delhi dt.4.7.2003. The question of law raised in this appeal is as under:- Whether the modv .....

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n such drilling machines, welding machines and lubricants was denied by the Revenue inter alia on the ground that these machines used in workshop are not used in producing or processing of the final product. The claim of the assessee to avail modvat credit relates to the period ending prior to July 1996 under Rule 57 Q of the Central Excise Rules, 1944 as it stood at the relevant time. The Tribunal relying on its earlier decision in Jawahar Mills Limited Vs. CCE, Coimbatore, 1999 (108) ELT 47(T) .....

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Rule 57Q to focus on the controversy in its fullness:- 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 on the final products, or as the case may .....

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in an Electronic Hardware Technology Park [or by a unit in Software Technology Parks] 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 purpose of this section,- (1) capital goods means- (a) machines, machinery, plant, equipment, appa .....

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ct, 1985 (5 of 1986) and used in the factory of manufacturer4 (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 No.84.04 for use with boilers of headingNo.84.02; (iii) I.C. Engines (other than engines of motor vehicle) falling under heading No.84.07 or 84.08; (iv) compressors (other than of a kind used f .....

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ies 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 .....

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duty paid capital goods used in manufacture of specified goods,' whereas the focus of contention raised by the learned counsel for the respondents is that wider scope of capital goods appearing from enumeration of various goods included in clauses (a), (b), (c) and (e) of the definition of capital goods contained in Rule 57Q which includes not only machines directly involved or used for producing or processing any goods or for brining about any change in any substance for the manufacture of .....

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of those articles used for producing or processing any goods or for brining about any change in any substance for the manufacture of final products is not essential. In fact, the contention of the revenue is that since drilling machines, welding machines and lubricants are not used for producing or processing any goods or for brining about any change in any substance for the manufacture of final products, they are not eligible for modvat credit as capital goods, notwithstanding the admitted case .....

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ange in any substance for the manufacture of final products with the machines, machinery, plant, equipment, apparatus, tools or appliances are not essential condition, if it falls in any of the clauses (b), (c) and (d) the essential condition of direct involvement of the capital goods in the manufacture in process is not to be seen. In this conclusion, we are fortified by decision of the Supreme Court in Commissioner of C.Ex., Coimbatore Vs. Jawahar Mills Ltd. 2001(132) E.L.T.3 (SC) page 3. The .....

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pital goods can be machines, machinery, plant, equipment, apparatus, tools or appliances. Any of these goods if used for producing or processing of any goods or for bringing about any change in any substance for the manufacture of final product would be 'Capital goods', and, therefore, qualify for availing Modvat credit. Per clause (b), the components, spare parts and accessories of the goods mentioned in clause (a) used for the purposes enumerated therein would also be 'Capital good .....

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t the same should be used in the factory of the manufacturer. Thus, it can be seen that the language used in the explanation is very liberal. Apparently, the direct use of machines which are ordinarily considered as capital goods is not an essential pre-condition in order to qualify for availing modvat credit on excise duty paid on it. Object and purpose of expression used in manufacture of final product was considered by the Supreme Court in Indian Farmers Fertilisers Cooperative Ltd. Vs. Colle .....

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inert gas generation plants. The concession availed by the assessee on purchase of raw naphtha was sought to be denied inter alia on the ground that ammonia produced by the assessee was not used in manufacture of fertiliser but was used for the other purposes like water treatment, steam generation and inert gas generation plants. The Supreme Court negatived the contention of the Revenue explaining the expression used in the manufacture of does not necessary relate to direct use of ammonia in man .....

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eligible to the exemption. The question is whether the ammonia used in the off-site plants is also ammonia which is used elsewhere in the manufacture of fertilisers . The water treatment, steam generation and inert gas generation plants are part and parcel of the composite process that produces as its end product urea, which is a fertiliser. These off-site plants are part of the process of the manufacture of urea. There is no good reason why the exemption should be limited to the raw naphtha us .....

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process of manufacturing urea, must, therefore, be held to be used in the manufacture of ammonia and the raw naphtha used for the manufacture thereof is entitled to the duty exemption. The Court went on to say:- It is too late in the day to take the view that the treatment of effluents from a plant is not an essential and integral part of the process of manufacture in the plant. The emphasis that has rightly been laid in recent years upon the environment and pollution control requires that all .....

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lished that capital goods used in the manufacture or which they are required to be used in manufacture of a particular article must be given a liberal interpretation so as to include all processes and requirements which are essential for smooth running of the plant engaged in the manufacture of the end product to come within the ambit of expression used in manufacture of . All those activities which are essential for running the plant or bringing into existence the end product are held to be par .....

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e end product. If the user which is integrally connected with direct process and is an activity necessary for carrying on the manufacture process, it has to be treated as part of manufacturing process. It would be pertinent to draw notice towards the fact that under clause (b) of Explanation-1 defining capital goods components, spare parts and accessories of the aforesaid machines, machinery, plant, equipment, apparatus, tools or appliances used for aforesaid purpose have also been made eligible .....

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ns the word accessory as anything which is joined to another thing as an ornament or to render it more perfect, or which accompanies it, or is connected with it as an incident, or as subordinate to it, or which belongs to or with it. It also means a thing of subordinate importance, aiding or contributing in secondary way or assisting in or contributing to as a subordinate. The Bombay High Court had an occasion to consider what is meant by accessories as a term used in the Excise law in Precision .....

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of classification. On the other hand, accessory has altogether different connotation. It signifies aiding or contributing in a secondary or subordinate way. It is used to denote a role or status which is supplementary or secondary to something of greater or primary importance. The word accessory is used to suggest that something or somebody is incidental to the main subject. In other words, accessory is something which is inessential and secondary or subordinate to another object. While compone .....

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(b), (c) or (d) of Explanation 1. It may be assumed that for the purpose of clause (a) such machines which are primarily involved in manufacturing are included in the capital goods but if we come to clause (b) which includes components, spare parts and accessories to such machines appliance its tools etc. which are enumerated in clause (a) and which are used for the purpose of manufacturing mentioned in clause (b) that accessories of machine must be of such machines which are used in manufacturi .....

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