Judgment:
1. This appeal arises out of and is directed against the Order-in-Appeal No. 758/99 dtd. 23.7.99 passed by the Commissioner of Central Excise & Customs (Appeals), Bangalore. The issue relates to modvat credit on capital goods i.e. grinding machine in terms of Rule 57Q of the Central Excise Rules.
2. The Assistant Commissioner as per his order dtd. 25.4.95 allowed modvat credit on capital goods amounting to Rs. 78,525.50 used as research and development equipment. Aggrieved by the order passed by the Assistant Commissioner, the Department has filed an appeal before the Commissioner (Appeals). The Commissioner (Appeals) has allowed the appeal filed by the Revenue and the reasoning given by him in the impugned order is as under: "It is an undisputed fact that at the relevant point of time i.e.
prior to 16.3.95, in order to be eligible as capital goods under Rule 57Q the goods in question ought to have had a nexus for bringing about change in the goods by direct participation in the manufacturing stream. Further, under Rule 57Q machinery which could be held to be for processing and producing goods were alone eligible for the benefit of modvat credit prior to 16.3.95. Modvat credit in this case was taken on 6.8.94 and the grinding machine imported was not at all used in the manufacture of the final products of the respondents which is once again grinding machines. The imported grinding machine is used for research and development purposes, i.e.
to develop and manufacture internal grinding machine. The imported machine being technologically superior was brought into India for study in respect of technical aspects of the above grinding machine which is superior to the one manufactured by the appellants. Thus, the modvat credit in question is being used a prototype.
Accordingly, the imported grinding machine clearly does not fall under the purview of capital goods as it stood at the relevant point of time. Therefore, modvat credit cannot be allowed on this grinding machine used for research and development. Hence, the order in original allowing modvat credit is not correct and proper and cannot be sustained." 3. Shri Gururaj, Ld. Counsel appearing for the appellants submitted that the subject-matter of the appeal is whether capital goods used as prototype for R&D purpose is eligible or not for availing modvat credit. He said that internal grinding machine brought into the factory in August 1994 was used as R&D purpose for developing similar machines.
Show Cause Notice has been issued to deny the credit on the ground that this was not permissible in 1994. Appellant contends that the amendment to Rule 57Q brought out on 16.3.95 allowed credit of capital goods used for R&D purpose, that this amendment being clarificatory in nature and hence retrospective and benefit of this amendment would be available to the appellant. The adjudicating authority has dropped the proceedings accepting the plea of the party. However, on an appeal, the Commissioner (Appeals) has allowed the departmental appeal holding that the capital goods used for R&D purpose is ineligible.
4. Shri Gururaj filed a miscellaneous application to take additional grounds on record to decide the issue involved herein. Referring to the miscellaneous application No. 207/03, he said that ground for denial of credit on capital goods no longer survives inasmuch as the appellant has actually installed the capital goods for use in the manufacture of other dutiable final products on 22.3.95. He said that the use of capital goods is now fully in accordance with the erstwhile Rule 57Q as well as the present Cenvat Credit Rules. He submitted that this ground was not taken at the time of filing the appeal since the appellant did not know the significance of the installation of the machine and accordingly, this specific ground was not taken in the appeal. He requested to permit him to raise this additional ground since this goes to the root of the matter.
5. Shri Narasimha Murthy, Ld. DR appearing for the Revenue opposed bringing additional evidence on record and said that additional evidence at appellate stage is not admissible when point was not raised before the lower authorities despite sufficient opportunity, relying upon the following decisions: 1. Unique Beauty Care Products Ltd. v. CCE, 1988 (18) ECC 86 (T) : 1988 (37) ELT 369 2. United Machinery Works Pvt. Ltd. v. CCE, Coimbatore, 1995 (79) ELT 477 He submits that the issue involved herein has already been settled by the decision of the Tribunal in the case of CCE, Indore v. Surya Roshni Ltd., 2003 (88) ECC 73 (T) : 2003 (155) ELT 481 holding that the subsequent becoming of the goods as dutiable or the manufacturer puts the capital goods to other use would not revive the question of admissibility of modvat credit. In that case, it was held that the 'capital goods are exclusively used in the manufacture of exempted products; Modvat credit will not be available to the manufacturer.
Subsequently, the exempted product becomes dutiable on account of withdrawal of exemption or the manufacturer puts the capital goods to other use would not revive the question of modvat credit which stands determined at the time of capital goods was received.' 6. Shri Gururaj, in rejoinder submitted that additional evidence in appeal is permissible as it was held by the Supreme Court in the case of Surinder Kumar and Ors. v. Gian Chand and Ors., AIR 1957 SC 875. He also referred to the decision of the Supreme Court in the case of K.Venkatramaiah v. Seetharama Reddy, AIR 1963 SC 1526 and particularly, he read Para 13 of the said decision which is as under: "13. It is very much to be desired that the courts of appeal should not overlook the provisions of Clause (2) of the Rule and should record their reasons for admitting additional evidence. We are not prepared, however, to accept the contention of the appellant that the omission to record the reason vitiates the admission of the evidence. Clearly, the object of the provision is to keep a clear record of what weighed with the appellate court in allowing the additional evidence to be produced -- whether this was done on the ground (i) that the court appealed from had refused to admit evidence which ought to have been admitted, or (ii) it allowed it because it required it to enable it to pronounce judgment in the appeal or (iii) it allowed this for any other substantial cause.
Where a further appeal lies from the decision of the appellate court such recording of the reasons is necessary and useful also to the court of further appeal for deciding whether the discretion under the rule has been judicially exercised by the court below. The omission to record the reason must therefore be treated as a serious defect. Even so, we are unable to persuade ourselves that this provision is mandatory. For, it does not seem reasonable to think at the Legislature intended that even though in the circumstances of a particular case it could be definitely ascertained from the record why the appellate court allowed additional evidence and it is clear that the power was properly exercised within the limitation imposed by the first clause of the Rule all that should be set at naught merely because the provision in the send clause was not complied with. It may be mentioned that as early as 1885, when considering a similar provision in the corresponding section of the Code of 1882, viz., Section 586, the High Court of Calcutta held that this provision for recording reasons is merely directory and not imperative, Gopal Singh v. Jhakri Rai, ILR 12 Cal 37. We are aware of no case in which the correctness of this view has been doubted.
It is worth noticing that when the 1908 Code was framed and Order 41 Rule 27 took the place of the old Section 568, the Legislature was content to leave the provision as it was and did not think it necessary to say anything to make the requirement of recording reasons imperative. It is true that the word "shall" is used in Rule 27(2), but that by itself does not make it mandatory. We are therefore of opinion that the omission of the High Court to record reasons for allowing additional evidence does not vitiate such admission." 7. He cited the decision of the Tribunal in the case of Wiegand India Pvt. Ltd. v. CCE, New Delhi, 1995 (78) ELT 331 wherein it was held that additional ground raised by the appellant pertaining to exigibility and durability of disputed items goes to the root of the issue. He contended that the decision referred to and relied upon by the other side in the case of Surya Roshni Ltd. (supra) is not applicable to the facts of this case. Relying upon the decision of the Supreme Court in the case of Ashwani Kumar Singh v. U.P. Public Service Commission, AIR 2003 SC 2661, he submitted that "each case depends on its own facts and a close similarity between one case and another is not enough because even a single significant detail may alter the entire aspect. In deciding such cases, one should avoid the temptation to decide cases (as said by Cordozo) by matching the colour of one case against the colour of another. To decide, therefore, on which side of the line a case falls, the broad resemblance to another case is not at all decisive." 8. I have carefully considered the matter. The Assistant Commissioner has allowed modvat credit on the ground that amendment to Rule 57Q on 16.3.95 is retrospective in nature. On the other hand, Commissioner (Appeals) has held that the imported grinding machine used for Research and Development purpose i.e. to develop and manufacture internal grinding machine, the imported machine being technologically superior was brought into India for study in respect of technical aspects of the above grinding machine which is superior to the one manufactured by the appellants and accordingly held that imported grinding machine clearly does not fall under the purview of capital goods as it stood at the relevant point of time. It was the contention of the party before the Tribunal by filing miscellaneous application that since subsequently, same has been used for the purpose of manufacture other dutiable final products, that should be taken as criteria in determining the eligibility of modvat credit for the earlier period. Except for filing miscellaneous application to take additional ground before the Tribunal, no convincing reasoning is forthcoming why that plea was not pleaded before the first appellate authority. In the case of Surinder Kumar and Ors. (Supra), relied upon by the Counsel, it was clearly held that there was no restriction on the powers of the Supreme Court to admit such evidence for the non-production of which at the initial stage sufficient ground had been made out. In the instant case, no ground has been made out for non-production of evidence before the authorities below. I am also not convinced with the arguments advanced on behalf of the party that ratio of the decision referred to and relied upon by the DR in the case of Surya Roshni Ltd. is applicable to the facts of this case. It was argued by him that issue was with reference to the Rule 57R in that case and this case falls under Rule 57Q of the Central Excise Rules. On going through the decisions, it is clear that the issue has been dealt with not only with references to the 57R but also with reference to 57Q as can be seen from Para 5 of the said decision. Since the ratio of that decision is clearly applicable to the facts of this case and in view of the verdict of that decision that subsequent development is not a criteria to decide the eligibility of modvat credit and in fact in that case, it was clearly held that the manufacturer puts the capital goods to other use would not revive the question of admissibility of modvat credit, which stands determined at the time the capital goods was received. Accordingly, I am of the view that ratio of that decision is squarely applicable to the facts of this case also and accordingly, appeal is dismissed, (Operative portion of the order was pronounced in open court on conclusion of hearing on 29th September 2003).