| SooperKanoon Citation | sooperkanoon.com/10002 |
| Court | Customs Excise and Service Tax Appellate Tribunal CESTAT Delhi |
| Decided On | Sep-10-1996 |
| Reported in | (1996)(88)ELT785TriDel |
| Appellant | J.K. Synthetics Ltd. |
| Respondent | Commissioner of Central Excise |
2. The Commissioner considered the various submissions made in response to the show cause notice and briefly recorded the use of the goods as follows: 1. Cables are used for maintaining electricity to various consuming points.
3. PLC Panels with standard accessories give digital Anolog signals to the field and receive signals from the field. 6. Printed circuits are used for control room instruments and may however be fitted with non-printed connecting elements.
8. Controller resistance are used in calibrating and deciding range of temperature.
10. CPU for Main line and Master penal is used in transmitting and receiving data.
and concluded that these are not capital goods falling within the scope of definition of the term in Rule 57Q(1) as these are not used for producing or processing of any goods or for bringing about any change in any substance for the manufacture of the final product. The Commissioner, further, concluded that the goods, in question, are electrical goods and controlling instruments which are used for storage and supply of electricity and for maintaining required parameters of such supply to the various consuming points in the factory. The present appeal has been filed against this order.
3. Shri A.N. Haksar, ld. Sr. Counsel for the appellants alongwith ld.Counsel, Shri Sanjay Grover, made submissions both on the legal aspects as well as technical aspects of the case. It was submitted that a perusal of Rule 57A and Explanation thereto relating to Modvat would show that by virtue of the Explanation, certain goods in the nature of capital goods are artificially excluded from the provisions of this rule. Under Rule 57Q, these very items, which have been excluded, were brought under the heading 'capital goods'. Therefore, it was argued that the exclusion from Rule 57A of certain inputs was sought to be remedied by the inclusion of the same inputs in Rule 57Q. The meaning of the words 'producing' or 'processing' occurring in both the rules, must be given the same meaning. The ld. Sr. Counsel cited and relied upon a decision in the case of C.C.E. v. Rajasthan State Chemical Works reported in 1991 (55) E.L.T. 444. The Supreme Court held therein that the process of handling and shifting of certain chemicals with the aid of power was an integral part of the process of manufacture. The ld.Sr. Counsel thereafter, submitted that the goods, in question, would also be covered by the provisions of the definition in Rule 57Q which covers component, spare parts and accessories of the machine, machinery, plant and equipment. These are the parts of the plant producing staple fibre. The term 'plant' is of wide connotation, for which the ld. Sr. Counsel cited the Supreme Court judgment in the case of C.I.T. v. Tajmehal Hotel reported in ITR (82) 44. The ld. Sr.
Counsel, thereafter, made submissions relating to the technical aspects and explained the functioning of each of the items showing the importance of the goods in the process of manufacture of their final product. The function of each of them, as given in an Affidavit by the Deputy Manager of the appellants is as follows : Power supply module was procured and installed in the Polymerization process for manufacture of polyester chips - process of which has been described above. This equipment generates + 24V power to give energy to field limit switches and other sensing devices to generate higher low status input/output signals to/from PLC to sense the positioning of the valves (sic) provided on the lines connected to trans-esterification reactors and polycondensation reactors and the limit switches to operate and control the process of trans-esterification and polycondensation for converting DMT and EG into polyester chips. Without this equipment, the said reactors will not function and no trans-esterification reaction and polycondensation will take place in flowless mode.
Cables in the manufacturing process i.e. trans-esterification and polycondensation process, were extensively damaged and, therefore, needed replacement. Cables procured were used to connect the supply of various equipments in this manufacturing process. Without these cables neither supply of energy can be given to the reactors, nor it can be controlled in the process from the panel. These cables act as carriers of power and signals.
PLC Panel and standard accessories : Programmable Logic Controllers (Simatic SS 133 U) i.e. PLC panel and standard accessories alongwith digital/analog input/output card, which gives digital and analog signals respectively to control valves, pumps and controllers for controlling flow of operation of DMT, EG & catalysts valves and also to control pressure cycling/heating of aforesaid reactors. Without PLC panel, as already stated above that the entire process is automatically controlled the manufacturing of polyester chips/fibre cannot be done. Thus it is an essential equipment for manufacturing of polyester chips from DMT & EG and maintaining standard quality thereof.
It is an important control of equipment which is used in control of various process valves related to temperature, pressure, flow, vacuum etc. It creates such condition in process reactors, lines & vessels with the help of other sensing & control equipments as are scientifically needed to manufacture of Polyester.
These are used for heating diphyl boilers, where electrical heating is done for melting the chips in spinning process for manufacture of polyester fibre and thus play a vital role in converting polyester chips into polyester fibres.
The Central Processing Unit for main line master panel is fundamentally the brain for the whole system of manufacturing process of polyester chips, which control the operational data sequences programme and gives output signal to DMT/EG/Steam Valves to aforesaid reactors and the lines connected thereto and display the same in (sic) station product. The process could be effectively controlled to obtain the desired results for manufacture of polyester chips.
This equipment is a thyrimisterised (sic) unit, which helps to control the speed of DC motor by supplying variable control voltage to the motors in the manufacturing process at various stages in the line connected to 4 line polycondensation reactors.
This equipment loads the software to trans-esterification and polycondensation reactors in sequential way to maintain the reactions in the said reactors for converting the inputs into polyester chips/fibre.
Junction Boxes are used mainly in field to establish a flame proof & safe Junction of field instrument cable with main signal cable without creating any fire hazard.
These are sub-modules for CPU, which receives signals from various DMT/DG/Steam valves/pumps, etc. and feed the same to CPU, which controls the manufacturing process, as explained above.
Transformer generates AC voltage of levels for operations of instruments in the process for manufacture of polyester chips, the process of which is explained above.
21" Monitor is provided at PLC station to know the current status/temperature/flow/pressure to DMT/EG/catalysts and also of various pumps/agitators and records process data in connection with manufacturing of polyester chips.
These are the equipments, which generates the desired voltage of energy as per the needs of controlling cards/monitor, sipart, etc.
4. Shri Jangir Singh, ld. DR submitted that Rule 57A is clearly distinguishable from Rule 57Q. Rule 57Q definition is such as to require a direct nexus between the use of the inputs and the emergence of the final product. It is different in its scope as it does not cover inputs used in or in relation to the manufacture of the final product.
The goods, in the present case, are electrical goods of a kind which do not have any direct use in the manufacture of the final product by the appellants. He referred to the reasoning of the Commissioner holding that the goods, in question, do not fall within the ambit of the definition of capital goods under Rule 57Q.5. The submissions made by both the sides, have been carefully considered. The question is whether the various goods, whose use in the appellants' plant, has been given above, would fall within the definition of capital goods under Rule 57Q and Explanation thereto.
Various arguments had been put-forth before us by the appellants citing Supreme Court judgments to say that these goods are part of the plant producing the final product and are essential for its emergence as commercial goods. Rule 57Q, on capital goods at the relevant time is as follows : "57Q. (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 manufacture 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 per cent export-oriented undertaking or by a unit in an Electronic Hardware Technology Park and used for the manufacture of final products in 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.
(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".
A perusal of the Rule shows that it provides for allowing credit of specified duty paid on the capital goods used by the manufacturer in his factory and for using such credit for payment of duty on the final product. It is to be noted that the wording is different from Rule 57A which provides for allowing credit of specified duty paid on the goods used in or in relation to the manufacture of the final product for utilising the credit for payment of duty on the final product. The expression used in Rule 57A is much wider than that in Rule 57Q. The wide sweep of Rule 57A has been highlighted by the Larger Bench of the Tribunal in the case of Shri Ramakrishna Steels v. C.C.E. reported in 1996 (82) E.L.T. 575 (Tribunal). According to Rule 57A, the Tribunal observed, credit is to be allowed for duty paid on "goods used in or in relation to the manufacture of the said final products". The expression "inputs" in Rule 57A, the Tribunal held, does not have the traditional meaning of raw-materials which require to be consumed and actually converted into a final product. The word "input" has been used in the sense of goods used in or in relation to manufacture of final product.
The Tribunal in that case had to consider the question whether chemicals and resins used in preparation of sand moulds are inputs in Rule 57A in the manufacture of steel castings. The Tribunal answered the question in the affirmative based on its conclusion that the expression "in relation to the manufacture" of final product occurring in Rule 57A is an expression of considerably larger import. Para 14 of the Larger Bench decision reads as follows : "We are here dealing with a case where inputs are not necessarily required to be used in the manufacture of final product, but are used "in relation to the manufacture" of the final product, which is an expression of considerably larger import. The words "in relation to the manufacture" are intended to set at rest all doubts. Where raw material is actually used in the main stream of manufacture of final product, that is, actually used in the physical or chemical process of manufacture, it is certainly an input used in the manufacture of final product. The doubt may arise only in regard to use of some article not in the main stream of the manufacturing process but in another stream of manufacturing something which is to be used for rendering final product marketable or used otherwise in assisting the process of manufacture. Such doubt is set at rest by use of the words "used in relation to the manufacture". It is true that sand mould is not a raw material actually used in the manufacturing process of final product in the sense that when mixed with some other articles it would produce the final product. Sand mould is also not used in the preparation of some other article which is necessary to render the final product marketable. It is an article which has a significant role to play in the manufacture of the final product without being used in the main stream of the manufacturing process but without the use of which the final product will never come into being. When such is the case, it is reasonable to conclude that sand mould is used in relation to the manufacture of final product, namely steel castings. It is logical to hold that chemicals or resin which are used in the sand mixture for the purpose of producing sand mould are used "in relation to manufacture of final product", namely steel castings." 6. The department's understanding of the scope of Rule 57Q as distinct from Rule 57A, is also available in a Trade Notice No. 12/96, dated 25-1-1996 of Mumbai Central Excise Commissionerate in Annexure 14.1/2 of "Taxman's Modvat Credit of Money Scheme" 1996 Edition which states that for the purpose of eligibility, it has to be ascertained whether the machine or apparatus has any direct role in manufacturing process or production of excisable goods. The meaning of capital goods as per Rule 57Q is restrictive and not exhaustive. "The words used in Explanation to Rule 57Q" in manufacture of "are not" in or in relation to manufacture of "imply that capital goods or its accessory should have direct role in production process." 7. In the Supreme Court judgment in Rajasthan State Chemical Works case, relied upon by the appellants, (supra), the Supreme Court, was considering Notification 179/77, dated 18-6-1977, which was to exempt all goods falling under Item 68 of Central Excise Tariff in or in relation to the manufacture of which no process is ordinarily carried on with the aid of power. So also in the Tribunal, decision in the case of Tata Engineering & Locomotive Co. v. C.C.E. - 1994 (70) E.L.T. 75, which has also be relied upon by the appellants, the Tribunal was considering Notification 217/86 which exempted goods manufactured in a factory and used within the factory of production in or in relation to the manufacture of final products specified in the notification. Having regard to the considerably wider import of the expression "in or in relation to the manufacture" of the final products considered in those decisions, they are not apposite in a situation under Rule 57Q, which does not use such a wide expression. The wording of Rule 57Q (extracted supra) is such as would require a closer nexus between the capital goods used by a manufacturer in his factory and the resultant final product than that required under Rule 57A in respect of inputs.
8. Apart from the above we note that the Govt. itself has been alive to the difficulties felt in determining the coverage and scope of 'capital goods' defined under Rule 57Q and has sought to eliminate ambiguity therein by substituting the existing Explanation to Rule 57Q by issue of Notification 14/96-C.E. (NT), dated 23-7-1996. The newly substituted Explanation to Rule 57Q defines capital goods by reference to Chapter, heading/sub-heading of Central Excise Tariff Act, 1985, and reads as follows : "Capital goods means, following goods falling within the Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) and used in the factory of the manufacturer, namely - (a) all 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. 85.15, 84.18, 8422.10, 84.24, 84.29 to 84.37, 84.40, 84.50, 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-conditioning 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 Nos. 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 refrigeration and air-conditioning appliances and machinery); (d) Components, spares and accesories of the goods specified against items (a) to (c) above; (g) tubes and pipes of iron or steel or copper or aluminium used for conveying inputs, on which credit of duty is taken, intermediates goods or final products in the factory; and 9. The above substituted Explanation to Rule 57Q is obviously clarificatory in nature as is evident from the Budget Speech of the Finance Minister while moving the Finance Bill, 1996 in pursuance of which the notification has been issued. The Finance Minister stated, therein, "The Modvat Scheme which provides for duty credit on inputs and capital goods has been liberalised considerably over the past few years. Still there are problems about the coverage of certain inputs and capital goods. I propose to clarify the scope of eligible capital' goods by specifying the heading and sub-headings of the tariff relating to capital goods in the Modvat Rules", (emphasis supplied). Being thus, a clarificatory amendment to Rule 57Q, the substituted Explanation, in our view, can be retrospectively applied as per well-settled principles of interpretation of notifications. In this context/the judgments of the Supreme Court in the case of K.P. Verghese - 1981 (131) ITR 597, Sole Trustee Loksikshan Trust (1976 TLR Page 1), CIT v. Mahindra & Mahindra reported in 1983 (4) SCC 392 are also relevant wherein the Supreme Court laid down that if an amendment was being brought forward by the Finance Minister, his speech justifying the amendment would be relevant as it would throw considerable light on the object and the purpose of the amendment and his speech would be a proper aid to a correct interpretation of the words in this amendment.
10. In the above view of the matter, therefore, the appeal is disposed of by remanding the matter to the Commissioner, with the direction to redetermine the eligibility of the items, in question, in the present case to Modvat credit under Rule 57Q of Central Excise Rules, in terms of the Explanation to that Rule as substituted by Notification 14/96-C.E. (N.T.), dated 23-7-1996, in accordance with law and after hearing the appellants in the matter.
The Appellate Tribunal in this case has held that the amendment made to Rule 57Q of the Central Excise Rules, 1944, by Notification No.14/96-C.E. (N.T.), whereby Explanation to said rule was substituted by a new explanation, is clarificatory in nature as stated in the Finance Minister's Budget Speech, thus it would have retrospective applicability. This decision of the Tribunal does not seem to be correct inasmuch as Notification No. 14/96-C.E. (N.T.), by itself specify the different dates from which different amendments made by it, would come into force. Clause (ii) of Rule 1 of the said Notification reads as under :- "(ii) They shall come into force on the date of their publication in the Official Gazette except that the Rules 4 and 6 shall come into force on the 1st day of August, 1996 and Rule 7 shall come into force on the 1st day of September, 1996." The amendment in question to Rule 57Q was made by Rule 10 of Notification No. 14/96-C.E. (N.T.), thus this amendment would come into force on the date of the publication of the said Notification in the Official Gazette. Notification No. 14/96-C.E. (N.T.) has since been published on 23-7-1996 in the Gazette of India, Part II(3)(i) at page 181 of the Issue No. 282, therefore, as per the statutory provisions, the newly substituted Explanation to Rule 57Q, redefining the capital goods by restricting their scope with reference to Chapter Heading/Sub-heading is effective from 23-7-1996.
It is so because when an amendment to a statutory rule by itself provides for the date from which such amendment shall take effect, taking aid from the principles of interpretation or from the Budget Speech of the Finance Minister, to determine the date of effect of such an amendment, is uncalled for.
Even otherwise it is cardenial principle of interpretation that every statute is prima facie prospective unless it is expressly or by a necessary implication made to have retrospective operation [See AIR 1989 SC 1247; AIR 1990 SC 1849; AIR 1951 SC 128 and (1984) 3 SCC 2811, specially in the case of fiscal legislation, imposing liability or restrictions, there is a general presumption that such a legislation is not retrospective in its application [See AIR 1980 SC 271; AIR 1954 SC 158]. Thus, the tax law that is to be applied to a transaction is the one which existed on date of said transaction [See AIR 1980 SC 251] unless the statute states otherwise.
The Hon'ble Supreme Court in the case of East Punjab Traders1 (Civil 1 This recent decision is likely to be printed in the Excise Law Times for 1st January, 1997.
Appeal No. 2951-53 of 1987) upholding the majority decision of Tribunal reported in 1988 (34) E.L.T. 98, has recently turned down the plea of the Customs department for treating an amendment to the Import Policy as a clarificatory in nature and retrospective in effect. The Supreme Court while nugating the plea of the department has held that an amendment which may expose a party to the penal consequences cannot be given retrospective effect by treating it as clarificatory.
In the present case, besides demand for wrong availment of Modvat, a penalty of Rs. one lakh has also been imposed on the assessee, therefore, if amendment to the Rule 57Q, which restricts the scope of the capital goods, is taken to be clarificatory in nature, it may lead to penal consequences to the assessee on a transaction conducted much before the said amendment took place. The present decision of the CEGAT does not even stand the test of cardenial principles of construction that amendment to the statute creating civil or penal consequence cannot be given any retrospective effect except by the statute itself.
On the face of statutory provisions of Notification No. 14/96-C.E.(N.T.), the statement made by the Finance Minister in the Budget Speech cannot be interpreted so as to give retrospective effect to the amendment in question over and above the statutory provisions.