Full Judgment
Jawahar Lal Gupta, J.
1. Is Modvat credit admissible under Rule 57A of the Central Excise Rules, 1944 in respect of Wire Mesh and Felt (Synthetic Cloth for paper machines) This is the short question which arises for consideration in this bunch of seven petitions/reference filed by the Revenue under Section 35H{1) of the Central Excise Act 1944.
2. Counsel for the parties have referred to the facts in G.C.R. No. 14 of 1999. These may be briefly noticed.
3. The respondent is engaged in the manufacture of paper. It uses Wire Mesh and Felt and claimed Modvat credit. The Assessing Authority disallowed the claim of the respondent on the ground that Wire Mesh and Felt were not inputs in the manufacture of paper. The Collector (Appeals) reversed the order. The department filed an appeal before the Tribunal. The claim of the Revenue was not accepted. Hence a petition for reference was filed. The Tribunal has referred the following question for the opinion of thiscourt :
'Whether the Appellate Tribunal after having found that wire and felt are parts of machinery used in relation to the manufacture of specified product is correct and that these parts of machinery are not excluded from the input while exclusion Clause (i) of the Explanation to Rule 57A of the Central Excise Rules, 1944 and if so, is correct in holding that the assessee is entitled to Modvat credit in respect of duty of central excise paid on such goods.'
4. A similar question has also been referred for the opinion of this Court in G.C.R No. 29 of 2000. In the remaining five cases the Revenue has filed petitions under Section 35H praying that the Tribunal be directed to make reference to this Court.
5. Counsel for the parties have been heard.
6. Mr. Rajesh Cumber, learned Counsel for the Revenue, has contended that Wire Mesh and Felt are part of the machinery. These are not inputs for the manufacture of paper. Resultantly, the assessee is not entitled to claim Modvat credit. On the other hand, Mr. Jagmohan Bansal, learned Counsel for the respondent who has appeared in two out of the seven cases before us has stated that the assessee is entitled to Modvat credit in respect of the two items irrespective of the fact whether these are treated as inputs or part of the machinery. On this basis, learned Counsel submits that the question as referred in the case of M/s. Zenith Papers deserves to be answered against the Revenue.
7. Rule 57A as applicable at the relevant time, inter alia, provided as under :
'RULE 57A. Applicability. - (1) The provisions of this section shall apply to such finished excisable goods (hereinafter referred to as the 'final products'), 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 of the Customs Tariff Act, 1975 (51 of 1975), as may be specified in the said notification (hereinafter referred to as the 'specified duty') paid on the goods used in or in relation to the manufacture of the said final products whether directly or indirectly and whether contained in the final product or not (hereinafter referred to as the 'inputs') and for utilising the credit so allowed towards payment of duty of excise leviable on the final products, whether under the Act or under any other Act, as may be specified in the said notification, subject to the provisions of this section and the conditions and restrictions that may be specified in the notification :
Provided that the Central Government may specify the goods or classes of goods in respect of which the credit of specified duty may be restricted.
Explanation. - For the purposes of this rule, 'inputs' includes -
(a) inputs which are manufactured and used within the factory of production, in or in relation to, the manufacture of final products,
(b) paints and packaging materials,
(c) inputs used as fuel,
(d) inputs used for generation of electricity used within the factory of production for manufacture of final products or for any other purpose, and
(e) accessories of the final product cleared along with such final product, the value of which is included in the assessable value of the final product,
but does not include -
(i) machines, machinery, plant, equipment, apparatus, tools, appliances or capital goods as defined in Rule 57Q used for producing or processing of any goods or for bringing about any change in any substance in or in relation to the manufacture of the final products;
(ii) packaging materials in respect of which any exemption to the extent of the duty of excise payable on the value of the packaging materials is being availed of for packaging any final products,
(iii) packaging materials or containers, the cost of which is not included in the assessable value of the final products under Section 4 of the Act; and
(iv) crates and glass bottles used for aerated waters.' ** ** ** ** ** ** ** ** ** ** ** ** ** **
8. Another provision which deserves notice is contained in Rule 57Q which, inter alia, provides as under :-
'RULE 57Q. Applicability.- (1) The provisions of this section shall apply to finished excisable goods of the description specified in the Annexure below (hereinafter referred to as the 'final products') for the purpose of allowing credit of specified duty paid on the capital goods used by the manufacturer in his factory and for utilising the credit so allowed towards payment of duty of excise leviable on the final products, or as the case may be, on such Capital goods, if such capital goods have been permitted to be cleared under Rule 57S subject to the provisions of this section and the conditions and restrictions as the Central Government may specify in this behalf :
Provided that credit of specified duty in respect of any capital goods produced or manufactured -
(a) in a free trade zone and used for the manufacture of final products in any other place in India; or
(b) by a hundred percent export-oriented undertaking or by a unit inan Electronic Hardware Technology Park or by a unit in SoftwareTechnology Parks and used for the manufacture of final productsin any place in India,
shall be restricted to the extent of duty which is equal to the additional duty leviable on like goods under Section 3 of the Customs Tariff Act, 1975 (51 of 1975) equivalent to the duty of excise paid on such capital goods.
Explanation. - For the purpose of this section, -
(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;
(b) components, spare parts and accessories of the aforesaid machines, machinery, plant, equipment, apparatus, tools or appliances used for aforesaid purpose; and
(c) moulds and dies, generating sets and weigh-bridges used in the factory of the manufacturer. ** ** ** ** ** ** ** ** ** ** ** ** ** **
9. A perusal of Rule 57A would show that the manufacturer of excisable goods is entitled to claim Modvat credit in respect of the 'goods used in or in relation to the manufacture of the said final products whether directly or indirectly and whether contained in the final products or not'. A further perusal of the Explanation shows that 'inputs' includes all things which are used within the factory for production, including paints, packaging materials, fuel, etc.
10. It is not disputed that Wire Mesh and the Synthetic Cloth are used as replaceable goods in the course of manufacture of paper. They are used directly as well as indirectly for the manufacture of the final product. These shall fall within the concept of 'inputs' as contained in Rule 57A.
11. Mr. Cumber contends that Wire Mesh and Felt are a part of the machine or plant and not inputs. These are specifically excluded by the Explanation to Rule 57A.
12. Learned Counsel is absolutely correct inasmuch as the Explanation specifies that machine, machinery, plant, equipment, apparatus, tools, appliances or capital goods as defined in Rule 57A are not included within inputs. However, a reference to Rule 57Q shows that Modvat credit is admissible in respect of capital goods which includes, machines, machinery, plant, equipment, apparatus, tools or appliances used for producing or processing of any goods for bringing about any change in any substance for the manufacture of final products.
13. In view of the above, the position that emerges is that if the two products are treated as inputs, the assessee is entitled to Modvat credit under Rule 57A. However, if these are excluded from inputs by virtue of the Explanation and are included in the category of machines, etc., then the Modvat credit shall be admissible under Rule 57Q. In the ultimate analysis, the credit is admissible. Resultantly, it appears that the view taken by the Tribunal was a possible view. In the process, the Revenue has not suffered any loss.
14. Mr. Cumber submits that the assessee had treated the Wire Mesh and Felt as inputs. It had not claimed credit under Rule 57Q.
15. We find no merit in this contention. The assessee had claimed the benefit under Rule 57A and, therefore, it could not have claimed it under Rule 57Q. It was the Assessing Officer who had disallowed the claim as not covered under Rule 57A. If that was so, he was under obligation to give the benefit under Rule 57Q which was clearly admissible if the case of the Revenue were to be accepted in toto. Thus, the question as posed in these references has to be answered against the Revenue.
16. No other point has been raised
17. We have also got petitions under Section 35H. In view of the above, the view of the Tribunal having been confirmed we do not think that any question of law arises which may require issuing of a direction to the Tribunal to make a reference to this Court. Resultantly, the petitions are dismissed.
In the circumstances of these cases there will be no order as to costs.