Judgment:
In the High Court of Judicature at Madras Dated:
27. 06.2013 Coram The Honourable Mrs.JUSTICE CHITRA VENKATARAMAN and The Honourable Ms.JUSTICE K.B.K.VASUKI C.M.A.No.4064 of 2005 M/s.The India Cements Ltd., Dalavoi Works, Cement Nagar Post, Sendurai Taluk, Perambalur District. .... Appellant Vs. The Commissioner of Central Excise, Trichy No.1, Williams Road, Cantonment, Trichy-1. .... Respondent Civil Miscellaneous Appeal filed under Section 35G of the Central Excise Act, 1944 against the final order No.1028/2004 dated 10.11.2004 passed by the Customs, Excise and Service Tax Appellate Tribunal, South Zonal Bench, Chennai. For Appellant : Mr.C.Saravanan For Respondent : Mr.K.Mohanamurali, SCGSC
JUDGMENT
(Judgment of the Court was made by CHITRA VENKATARAMAN, J.) The following substantial questions of law are raised by the assessee in the present Civil Miscellaneous Appeal filed as against the order of the Customs, Excise and Service Tax Appellate Tribunal, Chennai passed in Final Order No.1028/2004 dated 10.11.2004:- ".a. Whether the Customs, Excise & Service Tax Appellate Tribunal, Chennai is correct in denying the credit on the disputed goods which were covered under Rule 57Q of the Central Excise Rules 1944 during the period from 23.7.1996 to 31.8.1996?. b. Whether the Customs, Excise & Service Tax Appellate Tribunal, Chennai is correct in ignoring the contention of the appellant that classification of the disputed goods is not relevant to allow the credit under Rule 57Q of the Central Excise Rules, 1944?. c. Whether the Customs, Excise and Service Tax Appellate Tribunal, Chennai is correct in holding that Notification No.25/96-CE (NT) dated 31.08.1996 is not retrospective?.".
2. The assessee is engaged in the manufacture of cement and clinker falling under Chapter 25 of Central Excise Tariff Act, (CETA) 1985. Admittedly, the assessee availed the benefit of modvat credit provided under Rule 57Q of the Central Excise Rules, 1944 on various capital goods. During the period from 23.7.1996 to 31.8.1996, the assessee was stated to have taken credit on components of capital goods falling under Heading 84.74 of CETA. As stated in Sub Rule (1)(a) to Rule 57Q, which stood amended under Notification No.14/96-CE dated 23.7.1996, the components, spares and accessories of the goods, being excluded from the list of eligible goods, would not qualify for any modvat credit. Hence, show cause notice was issued by the Superintendent calling upon the assessee to explain as to why credit of Rs.16,60,370/- taken on ineligible capital goods should not be disallowed/recovered under Rule 57U of Central Excise Rules, 1944. The assessee resisted this by contending that those components/spares were essential for running the machines/plant. Consequently, there was no reason for disallowing the claim as proposed in the notice. 3.The Adjudicating Authority pointed out that though various items mentioned in the show cause notice were components/spares etc. of machines/machinery, they were not components/spares of eligible capital goods as specified under Rule 57Q of the Central Excise Rules, 1944, as it stood on the date of receipt of those components/ spares into the factory of the assessee. Thus, he rejected the claim on modvat credit. However, the Adjudicating Authority granted the relief partially and rejected the claim of the assessee in respect of most of the items and these items were received in the factory during the period from 23.07.1006 to 31.08.1996. During this period, items falling under Chapter Heading 84.74 of the Cental Excise Tariff Act were excluded from the Table, specifying the eligible capital goods under Rule 57Q. Prior to 23.07.1996, the eligible capital goods were described under Rule 57Q in broader terms, namely, machine/ machinery equipments. However, with effect from 23.07.1996, the eligible capital goods were cpecified in terms of the Tariff Chapter Heading number and Sub Heading number. Since Heading No.84.74 was excluded from the list of eligible capital goods till 31.08.1996 when under the amendment to Rule 57Q by Notification No.25/96 NT dated 31.08.1996, goods under Heading 84.74 were once again brought under the eligible category, the assessee was not eligible to modvat credit under Rule 57Q. Thus, while allowing modvat credit of Rs.6,93,934/- under Rule 57Q, he disallowed modvat credit to an extent of Rs.9,66,435/-.
4. Aggrieved by this, the assessee went on appeal before the Commissioner of Customs and Central Excise (Appeals-II) by contending that the goods falling under heading 84.74 and received during the period from 23.7.96 to 31.8.96 were eligible for modvat credit by virtue of clarificatory Notification No.25/96-CE (NT) dated 31.8.1996. The Appellate Authority pointed out that amendment under notification No.25/96-CE (NT) dated 31.8.1996 including the heading 84.74 under the list of eligible capital goods, came into effect only from 1.9.1996 and the goods falling under heading 84.74 were admittedly received during the period from 23.7.96 to 31.8.1996. In the circumstances, the assessee's claim of modvat credit was liable to be rejected.
5. Aggrieved by this, the assessee went on appeal before Customs, Excise and Service Tax Appellate Tribunal, where the assessee took the contention that as Notification No.25/96-CE (NT) dated 31.8.1996 was clarificatory in nature, retrospective effect had to be given to the said amendment. Further, considering the fact that prior to 23.7.1996, the assessee had availed the benefit of modvat credit on components, spare parts and accessories thereof, that benefit should have been taken as available to the assessee in respect of those goods received during the disputed period, when Notification No.14/96-CE dated 23.7.1996 was in vogue. The claim of the assessee was however rejected by the Tribunal on the ground that Notification No.25/96-CE (NT) dated 31.8.1996 could not be taken as clarificatory in order to read retrospective effect to it to cover the period from 23.7.1996 to 31.8.1996 to grant the benefit of modvat credit in respect of those specified items, which were excluded from the list of eligible capital goods under Notification No.14/96-CE dated 23.7.1996. Aggrieved by this, the present appeal has been filed before this Court by the assessee.
6. Learned counsel appearing for the assessee/appellant herein placed reliance on the circular No.276/110/96-TRU dated 2.12.1996, wherein, the Government of India, Ministry of Finance (Department of Revenue), Tax Research Unit, New Delhi, specifically pointed out the scope of Clause (d) of Explanation (1) to Sub Rule (1) of Rule 57Q that components, spares and accessories mentioned therein would be eligible for modvat credit, though those goods fall under other Chapters. In other words, the scope of entry under Rule 57Q is not restricted to the components, spares and accessories falling under Chapter 84 alone. Quite apart, when the Government itself has reintroduced the benefit of modvat credit immediately under Notification No.25/96-CE (NT) dated 31.8.1996 and applying the ".user test". as propounded in the Apex Court decision in the case of Commissioner of Central Excise, Coimbatore and others v. Jawahar Mills Ltd and others reported in 2001 (132) ELT3(SC), the Tribunal committed serious error in rejecting the assessee's claim.
7. Learned standing counsel for the Revenue, however, supported the order of the Tribunal and contended that in the absence of specific mention in clause (d) to Sub Rule (1) of Rule 57Q that it covered components, spares and accessories of the goods specified against items (a) to (c), the claim of the assessee could not be entertained.
8. Heard learned counsel for the assessee and learned Standing Counsel appearing for the Revenue and perused the materials available on record.
9. The issue that arises for consideration is as to whether the assessee would be entitled to credit in respect of goods falling under Heading 8474.90 on capital goods for the period 23.07.1996 to 31.08.1996. Rule 57Q deals with availing of Modvat credit on capital goods. Rule 57Q gives the definition of capital goods. The Explanation under Rule 57Q as it stood prior to 23.7.1996 and as it stood amended under Notification No.14/1996 dated 23.7.1996 and Notification No.25/1996 dated 31.8.1996, Notification No.4/94 CE dated 01.03.1994 gave the definition of capital goods in the explanation to Rule 57Q which reads as under: (1) ".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; Under Article 11/95, with effect from 16.03.1995, Clause (d) was inserted, excluding goods falling under Heading 84.74. ".In the said rules, in rule 57Q- (i) in sub rule (1), - (a)... (b)... (d)following goods falling within the Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) and used in the factory of the manufacturer- (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)... (iii)... Under Notification No.14/96-CE dated 23.7.1996, there was further amendment: In the said rules, in rule 57Q - (i)in sub rule (1) for the Explanation, the following Explanation shall be substituted, namely:- Explanation For the purpose of this section, - (1) 'capital goods' means, following goods falling within the Schedule to be Central Excise Tariff Act, 1985 (5 of 1986) and used in the factory of the manufacturer, namely:- (a) all the goods falling under Chapter 84 (other than those falling under heading No.84.07 to 84.09, Compressors falling under heading No.84.14 and of a kind used in refrigerating and air-conditioning appliances and machinery, heading or sub-heading Nos.84.15, 84.18, 8422.10, 84.24, 84.29 to 84.37, 84.40, 84.50, 84.52, 84.52, 84.69 to 84.74, 84.76, 84.78, expansion valves and solenoid valves falling under sub-heading No.8481.10 of a kind used for refrigerating and air-conditions appliances and machinery); (b) all goods falling under Chapter 85 (other than those falling under heading Nos.85.09 to 85.13, 85.16 to 85.31, 85.39 and 85.40); (c) all goods falling under heading No.90.11 to 90.13, 90.16, 90.17, 90.22 (other than for medical use 90.24 to 90.31 and 90.32), (other than of a kind used for refrigerating and air-conditioning appliances and machinery); (d) components, spares and accessories of the goods specified against items (a) to (c) above".. Under Notification No.25/96-CE dated 31.8.1996, Heading 84.74 was omitted from the excluded category. ".In the said rules, in Rule 57Q - (I) in sub rule (1) in Explanation in clause (1)- (i) for sub clause (a), the following sub clauses shall be substituted, namely:- (a) all goods falling under heading Nos.82.02 to 82.11; (aa) all goods falling under Chapter 84 (other than Internal Combustion engines falling under heading No.84.07 or 84.08 and of a kind used in motor vehicles, compressors falling under heading No.84.14 and of a kind used in refrigerating and air-conditioning appliances and machinery, heading or sub heading Nos.84.15, 84.18, 8422.10, 84.24, 84.29 to 84.37, 84.40, 84.50, 84.52, 84.69 to 84.73, 84.76, 84.78, expansion valves and solenoid valves falling under sub heading No.8481.10 of a kind used for refrigerating and air-conditioning appliances and machinery); (ii)......".
10. It is seen from the above extract that originally Rule 57Q as it stood prior to 16.03.1995, was very general in character that the components, spare parts and accessories of the machines or appliances used for producing or processing of any goods were recognised as capital goods for availing modvat credit. The subsequent amendment to Rule 57Q under Notification No.11/95-CE (NT) dated 16.3.1995, however, inserted Clause (d) in the Explanation to the rule to specify a detailed list of various goods which were eligible as capital goods for the purpose of availing the Modvat credit, notwithstanding the fact that they might not be capital goods within the meaning of clauses (a) to (c). However, while specifying the headings, it is apparent that goods falling under Heading 84.74 were not included therein for the purpose of treating it as capital goods for availing of modvat credit under Rule 57Q. Rule 57Q was further amended under Notification No.14/96-CE dated 23.7.1996, wherein, in sub rule (1), Explanation for 'capital goods' was substituted and the goods listed from clauses (a) to (d) as extracted above were brought under the definition of 'capital goods'. Once again, Heading 84.74 was omitted from the 'capital goods' definition for the purpose of Rule 57Q. The said rule was amended under Notification No.25/96-CE (NT) dated 31.8.1996. As a result, whatever benefit the assessee had had for the period prior to 23.7.1996, after the amendment under the Notification, the assessee could not claim the said benefit from 23.7.1996 to 31.8.1996.
11. In the circumstances, the assessee placed reliance on the circular issued by the Government of India dated 2.12.1996, in support of his contention that Notification No.25/96-CE (NT) dated 31.8.1996 was explained on the availability of modvat credit for the goods received during the disputed period too. Considering the hardship faced by the officers, the Government of India, Ministry of Finance (Department of Revenue), Tax Research Unit, New Delhi, issued the said Circular and in paragraphs 3 and 4 of the same, clarified the availability of modvat credit on components, spares and accessories under Rule 57Q. The Circular reads as follows: ". Circular No.27/110/96-TRU dated 2/12/96 F.No.354/141/96- TRU Government of India Ministry of Finance Department of Revenue Tax Research Unit Subject: Availment of Modvat credit on components, spares and accessories under Rule 57Q of the Central Excise Rules, 1944. Rules 57Q of the Central Excise Rules, 1944 allows credit of duty paid on capital goods used by the manufacturer of Specified goods. Capital goods eligible for credit have been defined in Explanation (1) annexed to Rule 57Q. Clause (a) to (c) of the said explanation cover specified capital goods falling under Chapters 82, 84, 85 and 90 and clause (d) covers components, spares and accessories of the said capital goods.
2. It has been brought to the notice of the Board that clause (d) of Explanation (1) is being interpreted by some of the field officers covering only such components, spares and accessories which would fall under Chapters shown under clauses (a) to (c) and credit is allowed only on those components, spares and accessories which are covered under the said chapters.
3. The matter has been examined. With effect from 23.7.1996, capital goods eligible for credit under Rule 57Q have been specified either by their classification or by their description. Clause (a) to (c) of Explanation (1) of the said rule cover capital goods by their classification whereas clause (d) covers goods by their description viz. components, spares and accessories of the said capital goods. It may be noted that there is a separate entry for components, spares and accessories and no reference has been made about their classification. As such, scope of this entry is not restricted only to the components, spares and accessories falling under Chapters 82, 84, 85 or 90 but covers all components, spares and accessories of the specified goods irrespective of their classification. The same was the position prior to amendment in rule 57Q (i.e. prior to 23.7.1996) when credit was available on components, spares and accessories of the specified capital goods irrespective of their classification.
4. Accordingly, it is clarified that all parts, components, accessories, which are to be used with capital goods of clauses (a) to (c) of Explanation (1) of rule 57Q and classifiable under any Chapter heading are eligible for availment of Modvat credit.
5. Trade and field formations may be informed accordingly.
6. The receipt of the Circular may please be acknowledged. ".
12. The assessee also placed reliance on the decision reported in 2010 (255) ELT481(Commissioner of Central Excise v. Rajasthan Spinning and Weaving Mills Ltd), wherein, the Apex Court, applying ".user test". evolved in the judgment in Jawahar Mills' case, held that items used in the fabrication of chimney would fall within the ambit of ".capital goods". and that the assessee was entitled to avail modvat credit in respect of the disputed items under Rule 57Q. In fact, the said decision was followed by this Court in respect of the assessee's own case on earlier occasion in C.M.A.No.3101/05 by order dated 13.12.2012. Having accepted the case of the assessee by applying the Apex Court decision reported in 2010 (255) ELT481(Commissioner of Central Excise v. Rajasthan Spinning and Weaving Mills Ltd), this Court rejected the Revenue's contention and affirmed the view of the Tribunal that the impugned goods were capital goods entitled to credit under Rule 57Q of Central Excise Rules.
13. It is seen from the facts narrated in the case before us that the item in question were classifiable under Chapter Heading 84.31 and they were parts of materials conveying equipments falling under Chapter Heading 84.28. Apart from that, there were goods falling under Chapter Heading No.84.74 for the period between 23.07.1996 and 31.08.1996. The dispute herein related to goods falling under Chapter Heading 84.74. As is evident from the reading of the amended Rule 57Q(1)(d) under Notification No.14/96-CE dated 23.7.1996, the provision reads as follows: ".(d) components, spares and accessories of the goods specified against items (a) to (c) above.". Going by the liberal meaning given to Clause (d) in Rule 57Q that the position prior to 23.07.1996 when credit was available for components, spares and accessories irrespective of the classification of specified capital goods, we have no hesitation in accepting the case of the assessee. Quite apart, even going by the circular, we agree with the argument advanced by the learned counsel for the assessee that the amendment under Notification No.25/96 dated 31.8.1996 has to be read only as clarificatory and retrospective effect has to be given for availing modvat credit. In view of this reasoning, we find that capital goods itself were eligible for modvat credit under Rule 57Q.
14. Thus, in the light of the decision of this court following the Apex court decision and in the background of the circular issued by the Government of India dated 2.12.1996 that the benefit of modvat credit under Rule 57Q would be applicable to all components, spares and accessories of the specified goods, irrespective of their classification under any chapter heading, we have no hesitation in granting the relief in favour of the assessee, thereby the order of the Customs, Excise and Service Tax Appellate Tribunal is set aside. Consequently, the Civil Miscellaneous Appeal is allowed. No costs. (C.V.,J) (K.B.K.V.,J) rk 27.06.2013 Index : Yes/ No Internet : Yes/No To 1. The Customs, Excise and Service Tax Appellate Tribunal, South Zonal Bench, Chennai.
2. The Commissioner of Customs & Central Excise (Appeals-II) No.1, Williams Road, Tiruchirapalli-620 001.
3. The Assistant Commissioner of Central Excise Central Excise Division II, Trichy. CHITRA VENKATARAMAN,J and K.B.K.VASUKI,J rk C.M.A.No.4064 of 2005 27.06.2013