Full Judgment
On hearing Shri R.C. Saxena, ld. Counsel for the appellants and Shri S.V. Singh, ld. JDR, we find that some of these goods have been considered in precedent decisions of the Tribunal as being eligible for Modvat credit under Rule 57A.2. Electric Wires and Cables have been held to be eligible for Modvat credit under Rule 57Q in the case of Collector of Central Excise v.Nova Udyog -1996 (88) E.L.T. 532. Similarly the Tribunal in the case of Commissioner of Central Excise v. Indian Rayons -1996 (88) E.L.T. 381 held that electric transformer being intergrated part of plant and machinery is eligible for Modvat credit under Rule 57Q. As regards air compressors the Commissioner has held that though they were included in the definition of capital goods from 16-3-1995, prior to that period it cannot be so considered. However, a similar stand by the Department in respect of electrical transformer did not find acceptance with the Tribunal in the case of Collector of Central Excise v. Nav Bharat Paper Mills -1996 (86) E.L.T. 501 wherein the Tribunal found not that when once the material came to be so included in the definition from 16-3-1995 there is no logic in not treating it as capital goods for the earlier period. Applying ratio the compressors in this case are held eligible for Modvat credit, subject to the exception that they are not of the variety excluded in the description of the item is the explanation to the Rule, namely that they are not of a kind used for refrigerating and air-conditioning appliances.
3. In respect of the other goods on which Modvat credit has been denied, it is seen that equipment for water treatment plant cannot be said to have a direct nexus to the production of final product. The function of the demineralised water treatment plant is to produce such water which is for spin finish oil, which in turn used for producing yarn. The ratio of the Tribunal decision in the case of Commissioner of Central Excise, Coimbatore v. Shanmugaraj Spg. Mills -1997 (89) E.L.T.84 cited by the ld. DR becomes applicable. In that case the Tribunal held that the definition of Capital Goods under Rule 57Q is restrictive and capital goods have to be used as one in which the process and manufacture or change in the substance has to be brought about. The Tribunal held that capital goods must have a nexus in the emergence of the final product by direct participation in the manufacturing stream.
The Tribunal is that case concluded that humidification plant for yarn manufacture was not eligible for Modvat credit under Rule 57Q as it does not answer the above test although admittedly humidification is required to obtain yarn of a particular quantity. The same reasoning will apply in this case for the demineralised water treatment plant as it does not have a direct nexus to the manufacturing stream in the appellants factory. The same reasoning would apply to cooling tower material also for denial of Modvat credit and hence it has been rightly denied. So also materials like glass insulating materials, electrical resistors and measuring instruments like [gauges], thermometers etc.
would hardly satisfy the definition of capital goods under Rule 57Q and are hence ineligible for Modvat credit.
4. The pipes and fittings are used for flow of various media like air, steam and water within the plants in the factory. In the light of the nature of the items for which the Commissioner in the impugned order has already extended the benefit of credit, such Credit can also be granted to pipes and fittings considering their function.
5. In the result the Commissioner's order is modified to hold that electric cables, Transformers, Compressors, and Black steel tubes and fittings are eligible for Modvat credit under Rule 57Q of the Central Excise Rules.
6. The denial of such credit on all other items in the impugned order is upheld. The appeal is disposed of accordingly.