Judgment:
1. This is a revenue appeal against the Commissioner (Appeals) Order No. 54/97, dated 17-2-1997, holding that radial insert steel rounds (forgings) is a capital goods and the assessee is entitled to avail Modvat credit under Rule 57Q of the Central Excise Rules. He has further held that mere processes carried out on the said input in terms of machining operation prior to use would not alter the item into a different product and there is no process of manufacture, therefore, he has held that it is continued to hold as capital goods and hence they are entitled for the credit. He has also held that not mere indicating by the assessee is only a procedural violation in terms of Rule 57T(1) of Central Excise Rules. Further he has noted that the appellants had filed a declaration and not merely intimating prior to use is a procedural violation.
2. The revenue is aggrieved with the finding and they contended that the item procured by the appellants was merely rough forged steel rounds and the assessee is subjecting it to machining to make the spare part for use with the capital goods would result, in the product falling under Chapter 84/85 and hence, the item is only an input and not capital goods. It is stated that Rule 57Q provides that availment of credit on capital goods and parts thereof, if they are used for producing or processing of inputs during the course of manufacture of final product. Rule 57A provides for availment of credit on inputs themselves, if they are used in the manufacture of final product. It is contended that the impugned goods i.e. rough forged steel rounds were used in the manufacture of raidal inserts and they were used as spare parts of the capital goods. Thus, the item received in the factory was an input used in the manufacture of a final product and as such the same was eligible to credit only under Rule 57A, subject to statutory provisions and not under Rule 57Q. It is also stated that the non-intimation of item prior to use is not a technical or procedural formality and therefore, the penalty imposed and denial of credit of Order-in-Original is fully justified.
3. The learned DR argued on the basis of these grounds, submitted that the item is not a spare part and therefore, it is not capital goods in terms of Rule 57Q. The item had undergone several process of machining to make it a spare part and therefore, it was not a spare part and the appellants had procured it to the factory and it was an input, hence it is required to be considered for Modvat credit under Rule 57A and not as capital goods.
4. The learned Advocate, Shri R. Raghavan referred to the detailed findings given by the Commissioner in para 5 of the impugned order, wherein the Commissioner has categorically held that the item was in the nature of spare parts and therefore it was capital goods. He has noted that the processes were only fitment activity and not an activity of manufacture and it did not undergo a change to make it a different article and also on such process the item had not acquired different characteristic, but continued to retain the essential character of the spare part i.e. radial insert. He has noted that so long as the basic facts namely the item is duty-paid and actually used in the appellants factory as spares, the mere fact that certain machining operation is done prior to use would not come in the way of grant of capital goods credit. The learned Advocate strongly relied on the findings of the Commissioner (Appeals) and submitted that the revenue has not produced any rebuttal evidence in the form of technical opinion or literature to show that the machining operation has changed the characteristic and the item is not a spare at all. He further submitted that non-intimation of taking credit was only a technical violation as held by the Commissioner (Appeals). He submitted that there is no illegality in the order impugned and therefore, the same is required to be confirmed. He further submits that if the ground of the revenue is that such processes resulted in the manufacture and brought into existence of new goods, then it followed that the assessee should have been called upon to file a classification list and pay duty on the new product. Such a course of action has not been adopted by the revenue and therefore, the grounds now taken up are totally different and not sustainable.
5. On a careful consideration of the submissions on both sides, I notice that the Commissioner has given a finding of fact that the input namely insert in the form of rough safed forging is a capital goods, as it is used in the machinery and it is not used as an input for the manufacture of final product. The revenue has not shown in the appeal that the item is an input and that merely carrying out some processes to enable the spare parts for being fitted in the machinery has resulted in a new product and that it has changed its characteristics.
Merely to say that it is an input and it is not a spare part, is not sufficient. It was required to have been proved with sufficient evidence to controvert the plea of the assessee that the item is not a spare part. It has been shown by the assessee, which has been accepted by the Commissioner that the item is not lost its characteristic of spare part and the activity of machining was only a fitment activity.
The plea raised by the Counsel that if the processes were to result into a new product, then the revenue ought to have been proceeded on those lines and as the said course of action had not been adopted, therefore, the present plea raised is also not sustainable and is also justified. The Commissioner's finding on non-intimation prior to credit is a procedural violation, is also a correct finding and there is no ground made out by the revenue to interfere with the order. In the grounds of appeal, the revenue has referred to the decision in the case of Shivaji Works Ltd. v. C.C.E. as reported in 1994 (69) E.L.T. 674 (Tribunal), which is on a different aspect of the matter. The said decision dealt with re-classification of items and also about the availment of benefit of notification. It did not deal with the aspect pertaining to the item being considered as a capital goods or not, hence the said judgment is totally distinguishable. The revenue also referred to judgment rendered in the case of P.C. Conductors v. C.C.E.as reported in 1996 (81) E.L.T. 336 (Tribunal) is also distinguishable, as in that case the finding given was pertaining to filing of declaration being a mandatory act and not a procedural or technical one. In the present case, there is no dispute of the assessee having filed the declaration, but it is only the filing of intimation to the jurisdictional Superintendent under Rule 57T(2) with regard to the time of availment of Modvat credit. The Commissioner has noted that even otherwise, the rule provides for condonation of delay and has noted that the Assistant Commissioner could have condoned the delay in the present case, hence the finding is sustainable.
6. Taking over all facts and circumstances of the case and considering that there are no grounds made out by the revenue for interference, therefore, the impugned order is sustained by dismissing the appeal.