Judgment:
1. The issue in the appeal relates to grant of Modvat credit in terms of Rule 57Q read with Rule 57S in respect of Fork Lifts which have been held to be eligible by the learned lower authority by reason of use of the same in the respondents' factory, following the ratio of the judgment of the Hon'ble Supreme Court in the case of Collector of Central Excise v. Rajasthan Chemical Works "I have carefully gone through the records of the case including the submissions made in the grounds of appeal as well as during the hearing. As rightly contended by the appellants, the proviso to Rule 57S has been amended by Notification No. 23/94-C.E. (N.T.) by which the concept of capital goods has been redefined to include machinery, machines etc. used in or in relation to the manufacture of final product. I observe that the above expression has a wider connotation than the expression 'used in production or to bring about any change in any substance in the manufacture of final product' and therefore as held by the Supreme Court Fork Lift being used in the transfer of raw material from one place to another can be regarded as taking a part in relation to the manufacture of final product, entitled to input credit." "Collector (Appeals) has observed that with effect from 20-5-1994, all capital goods used in or in relation to the manufacture of final products are covered by Rule 57Q read with Rule 57S in view of amendment of Rule 57S by Notification No. 23/94-C.E. (N.T.), dated 20-5-1994. This observation is not correct as the said amendment relates only to Rule 57S and there has been no change with respect to scope of Modvat benefit under Rule 57Q, nor has the definition of goods undergone any change under Rule 57Q. It is evident from the definition of capital goods under Rule 57Q, in respect of capital goods used in relation to the manufacture of final products that only Moulds & Dies, Generating Sets and weigh bridges used in the factory of the manufacturer were specifically covered, prior to 16-3-1995. It is only after the issue of Notification No. 11/95-C.E. (N.T.), dated 16-3-1995 that the scope of capital goods used in relation to manufacture of final products was widened. The issue of this Notification confirms the fact that not all the capital goods used in relation to the manufacture of the final products were covered by Rule 57Q, but only these specifically covered under the definition were covered.
The goods involved in this case i.e. Fork Lift, have been used for transport of raw materials from one place to another place only. It is not used for the manufacture of final products. It is also not specifically covered under Rule 57Q. As such it cannot be considered to be used " in relation to the manufacture of final product"." The learned SDR for the Department has reiterated the grounds of appeal and has pleaded that the ratio of the judgment of the Hon'ble Supreme Court is distinguishable and has held that Modvat credit in respect of Fork Lifts has to be considered only in the context of the definition of capital good as set out in Rule 57Q. This definition under Rule 57Q is reproduced below for convenience of reference: (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.
He has pleaded that what has to be seen is that the capital goods are such as are used for either producing or processing of the inputs or for bringing about any change in any substance for the manufacture of the final product. He has pleaded that a harmonious reading of this definition would lead to only one conclusion that the capital goods must be used for the purpose of treatment of the input materials and the result of which treatment should result in production of the goods or processing of the inputs or bring about any change in the inputs for the manufacture of the final finished products. In this background therefore there is no scope for enlarging the definition of capital goods to include within its ambit the Fork Lifts also. He has pleaded that the definition should be read on its own terms context of Rule 57Q and the wordings of Rule 57S cannot be read with Rule 57Q to hold that the use of the capital goods should be in or in relation to the manufacture of the notified finished product.
3. The learned Consultant for the respondents has pleaded that the learned lower authority had taken note of the judgment of the Hon'ble Supreme Court where a similar issue as to what constitutes process in the context of manufacture of sodium sulphate was before the Hon'ble Supreme Court. The issue involved in that case was in the context of use of pump for lifting the brine solution and the Hon'ble Supreme Court after analysing, the process of manufacture of sodium sulphate has observed that without lifting the brine solution the manufacture of the end-product i.e. sodium sulphate was not feasible and have held that the term 'processing' should be read in a larger context to mean any activity which would be essential for the ultimate manufacture of the final product and without which process the final product cannot be manufactured. In this context he drew our attention to Paras 16,17 and 16. A process is a manufacturing process when it brings out a complete transaction for the whole components so as to produce a commercially different article commodity. But that process itself may consist of several processes, which may or may not bring about any change at every intermediate stage. But the activities or the operations may be so integrally connected that the final result is the production of a commercially different article. Therefore, any activity or operation which is the essential requirement and is so related to the further operations for the end result would also be a process in or in relation to manufacture to attract the relevant clause in the exemption notification. In our view, the word 'process' in the context in which it appears in the aforesaid notification includes an operation or activity in relation to manufacture.
17. The transfer of raw material to the reacting vessel is a preliminary operation but it is part of a continuous process but for which the manufacture would be impossible. The handling of the raw materials for the purpose of such transfer is then integrally connected with the process of manufacture. The handling for the purpose of transfer may be manual or mechanical but if power is used for such operation, it cannot be denied that an activity has been carried on with the aid of power in the manufacturing process. The use of diesel pump sets to fill the pans with brine is an activity with the aid of power and that activity is in relation to the manufacture. It is not correct to say that the process of manufacture starts only when evaporation starts. The preliminary steps like pumping brine and filling the salt pans form integral part of the manufacturing process even though the change in the raw material commences only when evaporation takes place. The preliminary activity cannot be disintegrated from the rest of the operations in the whole process of manufacture. Similarly, when coke and lime are taken to the platform in definite proportions for the purpose of mixing, such operation is a step in the manufacturing process. It precedes the feeding of the mixture into the kiln where the burning takes place. The whole process is an integrated one consisting of the lifting of the raw materials to the platform mixing coke and lime and then feeding into the kiln and burning.
These operations are so interrelated that without anyone of these operations manufacturing process is impossible to be completed.
Therefore, if power is used in any one of these operations or any one of the operations is carried on with the aid of power, it is a case where in or in relation to the manufacture the process is carried on with the aid of power.
21. Thus "processing" may be an intermediate stage in manufacture and until some change has taken place and the commodity retains a continuing substantial identity through the processing stage, we cannot say that it has been manufactured. That does not, however, mean that any operation in the course of such process is not in relation to the manufacture. While interpreting the same exemption notification in Standard Fireworks Industries v. Collector -1987 (28) E.L.T. 56 (SC), it was held that manufacture of fireworks requires cutting of steel wires and the treatment of papers and, therefore, it is a process for manufacture of goods in question. The Notification purports to allow exemption from duty only when in relation to the manufacture of goods no process is ordinarily carried on with the aid of power. It was observed that cutting of steel wires or the treatment of the papers is a process for the manufacture of goods in question.
He has pleaded that the Hon'ble Supreme Court has clearly held that under the given conditions of manufacturing processes if it could be shown that the transportation of the materials is an essential requirement the use of that equipment should be taken to be in or in relation to the manufacture of the final product. He has further pleaded that Rule 57Q and other provisions for Mod-vat credit in respect of capital goods should be read harmoniously and no rule should be-read in isolation. He has pleaded that Modvat Rules for grant of Modvat credit in regard to capital goods is an integrated scheme and Rule 57Q as urged by the Revenue cannot be read in isolation. He has pleaded that under Rule 57S it has been clearly set out that the benefit of Modvat credit should be available in case it could be shown that the capital goods used are in or in relation to the manufacture of the notified finished products. The said Rule 57S for convenience of reference is reproduced below : RULE 57S. Manner of utilisation of the capital goods and the credit allowed in respect of duty paid thereon. - (l)The capital goods in respect of which credit of specified duty has been allowed under Rule 57Q, may- (i) be used in the factory of the manufacturer of the final products; or (ii) be removed, after intimating the Assistant Collector of Central Excise, having jurisdiction over the factory and after obtaining dated acknowledgement of the same, from the factory for home consumption or for export on payment of appropriate duty of excise leviable thereon or for export under bond, as if such capital goods have been manufactured in the said factory: Provided that where the capital goods without being used in or in relation to manufacture of final products are removed from the factory for home consumption on payment of duty of excise, or for export on payment of duty of excise, such duty of excise shall in no case be less than the amount of credit that has been allowed in respect of such capital goods under Rule 57Q: Provided further that where the capital goods are removed after being used in or in relation to manufacture of final products from the factory for home consumption on payment of duty of excise or for export under rebate on payment of duty of excise, such duty of excise shall be calculated by allowing deduction of 2.5 per cent of credit taken for each quarter of a year of use or fraction thereof, from the date of availing credit, except where such capital goods are sold as waste and scrap, the duty leviable shall be at the rate applicable on such waste and scrap.
(2) Credit of the specified duty allowed in respect of any capital goods may be utilised towards payment of duty of excise, - (i) on any of the final products manufactured in the factory of the manufacturer; or (ii) on the waste, if any, arising in the course of manufacture of the final products; or (iii) on the capital goods themselves if such capital goods are removed under Sub-rule (1).
(3) No part of the credit of duty allowed, shall be utilised save as provided in Sub-rule (2) or, shall be refunded in cash or by cheque.
(4) On an application made by a manufacturer, the Collector may, subject to such conditions and limitations as he may impose, permit a manufacturer, having credit in his account in form RG 23C maintained under Rule 57T and lying unutilised because of shifting of the capital goods, to another factory of the same manufacturer, to transfer the said unutilised credit in the account aforesaid maintained at the new factory.
(5) Notwithstanding anything contained in Sub-rule (1), a manufacturer may, after intimating the Assistant Collector of Central Excise having jurisdiction over the factory and obtaining dated acknowledgement of the same, remove the capital goods to a place for test, repairs or reconditioning on such capital goods and return the same to his factory, after the said purpose has been carried out, for further use as such capital goods by following the procedure as prescribed by the Central Board of Exrise and Customs or Collector of Central Excise.
4. We have considered the pleas made by both the sides. We observe that on reading of the definition of capital goods as set out under Rule 57Q, we ourselves had entertained a doubt prima facie that the equipment like Fork Lifts may not be covered by this definition. A plain reading of the definition would appear to indicate that the activities in which the capital goods are to be used have to be such that these are for either producing or processing of the inputs or for bringing about any change in the materials used for the manufacture of the finished products. However we observe that the scope of Modvat Scheme was enlarged to cover the capital goods with a view to give relief to the industry from cascading effect of duty. The term 'capital goods' therefore has to be read in the context of the use of the equipments in the assessee's factory. What has to be seen is whether the equipment used is a part of the manufacturing stream in the assessee's factory and whether the use is for production or processing or for bringing about any change in the materials used in the manufacture of the final product. The Hon'ble Supreme Court in the case of Collector of Central Excise v. Rajasthan State Chemical Works reported in 1991 (55) E.L.T. 444 had occasion to consider the scope of the term 'processing' in the assessee's factory in that case and which equipment was only doing the function of lifting of brine solution. In that case the Hon'ble Supreme Court has clearly held that handling would also be a process in the context of notified finished products in case it could be shown that without the function of handling the final product could not be manufactured. What is therefore to be seen is whether the equipment which is brought in as such that without the use of which for handling purpose the final product cannot be manufactured in the appellants' factory. In that event the benefit of Modvat credit in respect of that equipment has to be allowed. In the present case the goods involved are Fork Lifts which are used for lifting. The respondents it has been pleaded are manufacturing iron forgings of various sizes weighing as much as one tonne or so and unless these are lifted and the materials out of which the same has been manufactured are transported/ the manufacturing process is not possible. We observe that the respondents' case in the light of the plea made will have to be considered in the light of the judgment of the Hon'ble Supreme Court referred to supra. The plea of the Revenue is that the definition of capital goods as set out under Rule 57Q should not be read with the wordings of Rule 57S. We observe that the Modvat Scheme is an integrated scheme and there are various provisions under different rules from which the scope of the scheme can be read. Under Rule 57S it is clearly stated that the Modvat credit in respect of capital goods can be utilised so long as the same were used in or in relation to the manufacture of the final product. This clear provision about the use as above cannot be ignored and the use of the capital goods therefore for Modvat purpose will have to be considered in or in relation to the manufacture of the notified products. We therefore find no force in the plea of the Revenue and we hold that the appellants would be entitled to benefit of Modvat credit in case they are able to show that the use of Fork Lifts is essential in the respondents' factory and without the use of the same the Respondents would not be able to manufacture the final product. In this view of the matter we remand the matter to the learned lower authority for this limited purpose. We dismiss the appeal subject to the above observations.