TMI Blog2002 (6) TMI 51X X X X Extracts X X X X X X X X Extracts X X X X ..... dvat/Credit Scheme in respect of the following items after filing the declaration dated 31-3-1987 in terms of Rule 57G of the Rules : (i) Machine wire (ii) Dandy Roll Covers (iii) Felts (iv) Chipper knives and (v) Cutter knives. The Superintendent of Central Excise, Range I, Sirpur Kaghaznagar issued show-cause notice dated 18-9-1987 on M/s. Sirpur Paper Mills Limited asking them to show-cause to the Assistant Commissioner of Central Excise, Warangal as to why an amount of Rs. 1,86,164.16 being the Modvat credit availed by them for the months April, 1987 to August, 1987 on certain inadmissible items like Chipper knives, Mesh wire, Felts etc., under the provisions of Rule 57-I of the Rules. In the show-cause notice, it was stated that the Company filed a declaration under their letter No. SX/57A/6094/11718, dated 31-3-1987 to avail Modvat credit on five inputs such as machine wires, dandy roll covers, felts, chipper knives and cutter knives. The above declaration of the Company was forwarded to the Superintendent of Central Excise, Range I, who was incharge of the factory and asking him to verify the declaration of the Company and to send a report to the office of the Assistant Coll ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under Section 35G of the Act at the instance of the appellant Company. 3.We have heard Shri C. Kodandaram, learned Counsel for the petitioner and learned Senior Standing Counsel for the Government of India. 4.The resolution of the controversy in this reference depends on the correct understanding of provisions of Rules 57A relating to Modvat Credit Scheme. The said scheme enables manufacturers of specified final products to avail credit of specified duty paid on specified goods (referred to as "inputs") used in or in relation to the manufacture of the said final products and to utilize such credit towards payment of excise duty leviable on the final products under 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 restrictions that may be specified. Rule 57A reads as follows : "57A The provisions of this section shall apply to such finished excisable goods (hereinafter referred to as the "final product"), as the Central Government may, by notification in the Official Gazette, specify in this behalf, for the purpose of allowing credit of any duty of excise or the additional duty under section 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Apex Court having given the example of the various processes, raw cotton is subjected to before it is converted into yarn and yarn is converted into textiles, indicated that the processes would be regarded as integral 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 treatment." 6.In Doypack Systems (Pvt.) Ltd. v. Union of India - 1988 (36) E.L.T. 201 (S.C.), the Apex Court while considering the expressions "pertaining to", "in relation to" and "arising out of" occurring in Section 4(1) of the Swadeshi Cotton Mills Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 utilization is in the manufacturing process as distinct from the manufacturing apparatus." 8.The Apex Court, referring to the decision in Deputy Commissioner of Sales Tax v. Thomas Stephen and Company Ltd. - 1988 (34) E.L.T. 416 (S.C.), where it was held that cashew shells used as fuel in the kiln used for manufacture of tiles as "goods consumed in the manufacture of other goods" under Section 5A(1)(a) of Kerala General Sales Tax Act, 1963, opined that the observation therein to the effect that - "These (cashew shells) have not been used as raw materials in the manufacture of the goods. These have been used only as an aid in the manufacture of the goods by the assessee. Consumption must be in the manufacture as raw-material or of other components which go into the making of the end-product to come within the mischief of the section. Cashew shells do not tend to the making of the end pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he genus of inputs, the species mentioned in the excluded categories because otherwise a manufacturer would be entitled to claim Modvat in respect of such inputs repeatedly as these would not be inputs which would be consumed in the process of manufacture. This is clear from a scrutiny of the excluded items." 10.The Calcutta High Court further held that these inputs do not fall within the dictionary meaning of "machine, machinery, instrument or appliance" and are chemicals used for the machinery. The Calcutta High Court proceeds to hold : "It does not matter that the items are used in the machinery or for the purpose of the machinery. To repeat, the only relevant question is, are they used in or in relation to the manufacture of ingots." 11.Having so opined, the Calcutta High Court found fault with the reasoning of the Tribunal in seeking to limit the meaning of the word "inputs" to those items which go into the steel ingot completely overlooking the phrase "in relation to" occurring in the Explanation to Rule 57A. In Ponds (India) Limited v. Collector of Central Excise - 1993 (63) E.L.T. 3 (Mad.) the appellant, manufacturer of cosmetics, used duty paid plastic granules to ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y and suppresses the mischief as the Legislature or the Rule-making authority, as the case may be, envisioned. The provisions of Rule 57A in one sense remedial as well as exemptrating. It is well established principle of interpretation that a taxing statute is to be strictly construed. This well-established rule in the familiar words of Lord Wensleydale, In Re : Micklethwait - (1885) 11 Ex 452, p.456 reaffirmed by Lord Halsbury in Tenant v. Smith - (1882) AC 150 p.154 and Lord Simonds in St. Aubyn v. A.G. - (1951) 3 All ER 493, p. 485 (HL), and referred to with approval by the Supreme Court in Member Secretary, Andhra Pradesh State Board for Prevention and Control of Water Pollution v. Andhra Pradesh Rayons Ltd. - AIR 1989 SC 611, p.614 and in Saraswati Sugar Mills v. Haryana State Board - AIR 1992 SC 224, p.228 means : "The subject is not to be taxed without clear words for that purpose; and also that every Act of Parliament must be read according to the natural construction of its words." In a classic passage Lord Cairns stated the principle in Partington v. A.G. - (1869 LR4 HL 100, p. 122 thus : "If the person sought to be taxed comes within the letter of the law he must be t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the provision has to be literally construed. In Tata Oil Mills Co. v. Collector of Central Excise - 1989 (43) E.L.T. 183 (S.C.) = AIR 1990 SC 27, the Supreme Court held that if the object of an exemption notification is to encourage the use of indigenous rice bran oil and to discourage the use of edible oils in soap manufacture, a narrow construction of the notification which defeats this object cannot be accepted and preference has to be given to a wider construction which promotes the object. In Oblum Electrical Industries Pvt. Ltd., Hyderabad v. Collector of Customs, Bombay - 1997 (94) E.L.T. 449 (S.C.) = AIR 1997 SC 3467, the Supreme Court dealing with the object to encourage exports by granting exemption from customs duty on materials that are needed for the manufacture of the resultant product, opined that the words "material required to be imported for the purpose of manufacture of products" included not only materials which are actually used in the manufacture but also materials which though not used in the manufacture are yet required in order to manufacture the resultant product. In Collector of Central Excise v. Neoli Sugar Factory - 1993 (65) E.L.T. 145 (S.C.) = AIR 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6.The two items in question viz., wire mesh and woollen felts, it is stated, are used in the paper machine section of the paper mill to maintain the machinery functional. Pulp with excess water comes from the pulp making machine to the paper making machine. Pulp is allowed to fall on phospher bronze or stainless steel wire mesh. Pulp articles remain on the wire mesh and web of pulp fibre is formed. It moves on moving wire mesh and is allowed to fall on felt (cotton, woollen or synthetic). The moving felt carries the pulp web to the drier and is calendered or pressed being wound on rolls and treated further. It is also stated that the above articles are damaged in the process and require replacement periodically. These articles are replaceable goods used in the paper-making machine in the course of manufacture of paper. It is true that wire mesh and woollen felts can be regarded in a way, as parts of the paper making machine or machinery used in the manufacture or for the purpose of the machine. But, at the same time, by their very purpose, wire mesh and woollen felts are goods used in relation to the manufacture of paper or paper products and if that is so they can undoubtedly be t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l products. In McGraw-Hill Dictionary of Scientific and Technical Terms, IV Edition, the above terms are defined as follows : Apparatus : A compound instrument designed to carry out a specific function. Appliance : A piece of equipment that draws electric or other Energy. Equipment : One or more assemblies capable of performing a complete function. Machine : A mechanical, electric or electronic device, a combination. of rigid or resistant bodies having definite motion and capable of performing useful work. Machinery : A group or parts of Machines arranged to perform a useful function. Plant : The land, buildings and equipment used in an industry. In Academic Press Dictionary of Science and Technology, the above terms are defined as follows :- Appliance : In general, any tool or machine that is used to carry out a specific task or produce a desired result. Machine : Any device that transmits or modifies energy, an assembly of inter related parts, each with a definite motion and separate function. Machinery : A group of parts or machines that are arran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e parts or members of a machine which when assembled, as it is styled, form a complete machine so also may some such of those parts, which when assembled with the other necessary parts, would form a complete machine be styled as "machinery". The above decision of the Privy Council was followed by the Supreme Court in Commissioner of Income-tax v. Mir Mohammad Ali - AIR 1964 SC 1693. In Rohit Pulp and Paper Mills Ltd. v. Collector of Central Excise - 1990 (47) E.L.T. 491, the exemption notification 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 Supreme Court held that the principle "noscitur a sociis" according to which when two or more words which are susceptible of analogous meaning are coupled together they are understood to be used in their cognate sense, was applicable. Associated words take their meaning from one another under the principle of "noscitur a sociis". This principle is applied for ascertainment of the meaning of a doubtful word with reference to the meaning of words associated with it. From the definition of the words "Apparatu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tention of the Rule-making authority not to bring spares within the ambit of the exclusion Clause (i). The language of exclusion Clause (i) is plain, clear and precise. It carves out "machines, machinery, plant, equipment, apparatus, tools or appliances ....". These expressions indicate a self-contained unit, complete unit or whole unit but not any part thereof, unless such part is also a complete unit in itself. Therefore, it is not possible to infer the intention of the Rule-maker to exclude parts also along with machines, machinery etc., and such an interpretation is not warranted either from the language used nor is it spelled out by necessary implication. 21. In the result and for the foregoing reasons, we hold that wire mesh and woollen felts used in machinery in the manufacture of paper and paper products are eligible inputs under Rule 57A of the Rules and that such inputs are not excluded by virtue of the exclusion Clause (i) of the Explanation to Rule 57A. Consequently, we answer the question referred to us in the negative in favour of the assessee and against the Revenue. The RC is accordingly disposed of with no order as to costs. - - TaxTMI - TMITax - Centra ..... X X X X Extracts X X X X X X X X Extracts X X X X
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