Kalyani Steels Ltd. Vs. Commissioner of Central Excise - Court Judgment

Excerpt:
1. these appeals are directed against three separate orders-in-original passed by the commissioner of central excise & customs, pune, confirming the demands made in six show cause notices.3. the appellant, engaged in the manufacture of steel billets falling under chapter 72 of the central excise tariff act, 1985, was availing capital goods modvat credit under rule 57q of the central excise rules, 1944 since september, 1984 in respect of refractories (bricks and mortar) and binding accessories used in electric arc furnace used in steel making, after having filed necessary declaration for the period september, 1994 to june, 1995. six separate show cause notices were issued stating that the inputs in respect of which modvat credit was availed were not eligible inputs and therefore, modvat credit was not admissible and proposing to demand the amounts of duty taken credit of.the appellant resisted the show cause notices raising various contentions. however, the commissioner overruled the contentions and confirmed the demand. these orders are now under challenge.4. the annexures to the notices, identical in content, stated that refractories and binding accessories are not "capital goods" as defined in rule 57q(1) of the rules since they are not used for producing or processing of any goods or for bringing about any change in any substance for manufacture of the final product. it was also alleged that refractories falling under chapters 68 and 69 of the ceta, 1985 are not machine, machinery, plant, equipment, apparatus, tools or parts thereof but are goods used for maintenance of furnaces and hence cannot be regarded as capital goods and as such do not fall under rule 57q of the rules, and binding accessories cannot be regarded as capital goods since refractories themselves are not capital goods. however, the impugned orders have been passed holding that refractories and binding accessories are not parts of furnace but only used in a furnace for the purpose of maintenance and that refractory bricks under chapter 69 were included in the definition only by amendment introduced with effect from 16-3-1995 and hence refractories in this case do not fall under chapter 69 and therefore, neither refractories nor the binding accessories were covered by the definition as it existed under rule 57q. the commissioner also indicated that even assuming that refractories and binding accessories are parts of furnace, the furnace itself being immovable property cannot be excisable goods and parts thereof cannot be regarded as capital goods. these grounds are being challenged by the appellant.5. the id. counsel for the appellant, while challenging the above conclusion of the commissioner contended that the tribunal, on several occasions, had held that refractories are parts of machine or machinery, and that the amendment introduced under rule 57q and referred to earlier are clarificatory in nature, and have retrospective effect, as held by the two members bench of the tribunal in j.k.synthetics ltd. v. commissioner of central excise, jaipur -1996 (17) rlt 98 and therefore, the final definition in rule 57q(1)(b) of the rules would apply in regard to the earlier period also and therefore, refractories must be taken to be capital goods during the relevant periods. the id. counsel further contended that the furnace used by the appellant was purchased as movable property and was duty paid and the mere circumstance that the furnace becomes immovable property on being installed, will not take the furnace out of the category of machine or machinery and therefore, the aspect of immovability is not relevant in deciding whether ^ the furnace or parts thereof are capital goods or not. alternatively, the id. counsel contended that even assuming that rule 57q of the rules is not attracted in the instant case, rule 57a of the rules would be attracted as larger bench of the tribunal in shri ramakrishna steel industries ltd. v. collector of central excise, madras(tribunal) and union carbide india ltd. v.collector of central excise, calcutta-i -1996 (86) e.l.t. 613 (tribunal) held that while machines, machinery, plant and the like fall within the exclusion clause (1) to the explanation to rule 57a of the rules, parts of such machines or machinery do not fall within the ambit of the exclusion clause and parts of machine and machinery would be inputs eligible for modvat credit and therefore, since the refractories and binding accessories are parts of furnace which is a machine, modvat credit would be available under rule 57a of the rules.5. shri gurnani, jdr rebutted the above contentions and supported the reasoning and conclusion in the impugned order. he further contended that a manufacturer who has given declaration under rule 57q of the rules cannot at this stage claim benefit of modvat credit under rule 57a of the rules in the absence of an appropriate declaration filed at the appropriate time as required under rule 57a of the rules. in support of his contention he placed reliance on the decision of a learned single member of the tribunal in kakkar complex steels pvt.ltd. v. collector of central excise, chandigarhmukund iron and steel works ltd. v. collector of central excise - 1990 (45) e.l.t.84 (tribunal); mukund iron and steel works ltd. v. collector of central excise -1990 (48) e.l.t. 552 (tribunal) and collector of central excise, indore v. raipur alloy steels ltd. -1995 (78) e.l.t. 44 (tribunal), refractory bricks are to be regarded as parts of machine, machinery or plant etc. in a decision earlier to these three decisions, there was a finding that the refractories used in the steel industry go in relation to the parts of machinery and equipment. in the last of the three decisions there is a detailed discussion of the nature and purpose of the refractory bricks. "...the structural and mechanical parts of a modern electric arc furnace consists basically of a refractory lined shell and roof to contain the charge, and mechanisms to position the electrodes to maintain the arc for melting and refining, to tilt the furnace to tap and desilag, to remove the roof for top charging and to operate the doors of the shell. ...refractories are used to line furnaces for melting metals and glass, in crucibles for inducing chemical reactions and for melting materials, as insulation in the walls of furnaces and kilns, and in other places where resistance to temperature and corrosion is required. they constitute one of the most important and vital parts of the furnace installation." 8. the view taken in the above decisions on the question of law has been overruled by the larger bench of the tribunal in the two decisions referred to above. but there should be no difficultly for us to appreciate the factual position in regard to refractories as explained in the aforesaid three decisions of the tribunal. the commissioner has not relied on any materials leading to an inference to the contrary.the impugned order merely observed that refractories are used for the purpose of maintenance of the furnace. perhaps, in the wider sense of the word refractories do contribute to maintenance of the furnace but as indicated in the passages quoted above, refractories are basically parts and important parts of furnace. the larger bench has held that while the machine, machinery, plant, equipment etc. are excluded from the purview of the modvat scheme by virtue of exclusion clause (1) of the explanation (1) to the explanation to rule 57a of the rules, parts of such machines or machinery do not fall within the ambit of the exclusion clause and parts of machine and machinery would be inputs eligible for modvat credit and therefore, since the refractories and binding accessories are parts of furnace which is a machine, modvat credit would be available under rule 57a of the rules.9. what remains is the consideration of the stand taken by shri gurnani that since the appellant has not filed the declaration as required under rule 57g(1) of the rules, which is necessary for claiming the benefit of modvat scheme under rule 57a of the rules, but has filed declaration only under rule 57q as a pre-condition for availing benefit of the modvat scheme under rule 57q of the rules, the benefit under rule 57a cannot be availed by the appellant. shri gurnani placed reliance on the decision of the single member of the tribunal in kakkar complex steels pvt. ltd. v. collector of central excise, chandigarh - 1997 (90) e.l.t. 549 (tribunal). in that case, the appellant availed modvat benefit in respect of hot tops and refractory goods under rule 57a of the rules and the departmental authorities held that the appellant was not entitled to modvat benefit. it was urged before the tribunal that in any event, the appellant was entitled to the benefit of rule 57q of the rules treating the goods as capital goods. it was held in para 7 of the decision that declaration in respect of capital goods had been filed much after the date of taking modvat credit and that the appellant's claim for benefit in terms of declaration filed under rule 57g cannot be allowed.10. we have to examine the facts and circumstances of the case to see whether the principle followed in the above decision can be applied in the present case. the three decisions of the tribunal referred to earlier viz. two decisions relating to mukund iron & steel works ltd. - 1990 (45) e.l.t. 84 (tribunal) and 1990 (48) e.l.t. 552 (tribunal) and the decision in the case of collector of central excise, indore v.raipur alloy steels ltd. - 1995 (78) e.l.t. 44 (tribunal) clearly laid down that refractory bricks are not inputs admissible under the modvat scheme of rule 57a of the rules and modvat credit would not be available. it is explained by the appellant that in view of the position laid down as early as in 1990, there was no purpose in the appellant filing declaration under rule 57g(1) to claim the benefit under rule 57a of the rules and accordingly the appellant filed declaration under rule 57t of the rules with a view to claim the benefit under rule 57q of the rules treating refractories and binding accessories as components of machine for the purpose of clause (1)(b) of the explanation to rule 57q of the rules. he also pointed out that the position as laid down in the two decisions of the mukund iron and steel works ltd. and in raipur alloy steels ltd. were overruled by a larger bench of the tribunal quite recently and therefore, the appellant could not have filed the declaration under rule 57g(1) of the rules during the period covered by the dispute in these appeals. we are inclined to agree that in view of the decisions of the tribunal referred to above, the appellant could not have filed declaration under rule 57g(1) of the rules in order to claim benefit under rule 57a of the rules and this special circumstance distinguishes the facts of the present case from the facts of the case in kakkar complex steels pvt.ltd. whatever information the appellant was required to furnish under rule 57g of the rules had already been given in the declaration submitted under rule 57t of the rules and the same was subject to verification by the department. in the peculiar facts of the case, we hold that the modvat benefit under rule 57a of the rules is admissible to the appellant notwithstanding the failure to file the declaration under rule 57g(1) of the rules. in this view, we feel it unnecessary to consider the dispute arising on the applicability or otherwise of rule 57q of the rules.11. for the reasons indicated above, we set aside the impugned orders and allow the appeals.

Judgment:
1. These appeals are directed against three separate orders-in-original passed by the Commissioner of Central Excise & Customs, Pune, confirming the demands made in six show cause notices.

3. The appellant, engaged in the manufacture of steel billets falling under Chapter 72 of the Central Excise Tariff Act, 1985, was availing capital goods Modvat credit under Rule 57Q of the Central Excise Rules, 1944 since September, 1984 in respect of refractories (bricks and mortar) and binding accessories used in electric arc furnace used in steel making, after having filed necessary declaration for the period September, 1994 to June, 1995. Six separate show cause notices were issued stating that the inputs in respect of which Modvat credit was availed were not eligible inputs and therefore, Modvat credit was not admissible and proposing to demand the amounts of duty taken credit of.

The appellant resisted the show cause notices raising various contentions. However, the Commissioner overruled the contentions and confirmed the demand. These orders are now under challenge.

4. The annexures to the notices, identical in content, stated that refractories and binding accessories are not "capital goods" as defined in Rule 57Q(1) of the Rules since they are not used for producing or processing of any goods or for bringing about any change in any substance for manufacture of the final product. It was also alleged that refractories falling under Chapters 68 and 69 of the CETA, 1985 are not machine, machinery, plant, equipment, apparatus, tools or parts thereof but are goods used for maintenance of furnaces and hence cannot be regarded as capital goods and as such do not fall under Rule 57Q of the Rules, and binding accessories cannot be regarded as capital goods since refractories themselves are not capital goods. However, the impugned orders have been passed holding that refractories and binding accessories are not parts of furnace but only used in a furnace for the purpose of maintenance and that refractory bricks under Chapter 69 were included in the definition only by amendment introduced with effect from 16-3-1995 and hence refractories in this case do not fall under Chapter 69 and therefore, neither refractories nor the binding accessories were covered by the definition as it existed under Rule 57Q. The Commissioner also indicated that even assuming that refractories and binding accessories are parts of furnace, the furnace itself being immovable property cannot be excisable goods and parts thereof cannot be regarded as capital goods. These grounds are being challenged by the appellant.

5. The Id. Counsel for the appellant, while challenging the above conclusion of the Commissioner contended that the Tribunal, on several occasions, had held that refractories are parts of machine or machinery, and that the amendment introduced under Rule 57Q and referred to earlier are clarificatory in nature, and have retrospective effect, as held by the two Members Bench of the Tribunal in J.K.Synthetics Ltd. v. Commissioner of Central Excise, Jaipur -1996 (17) RLT 98 and therefore, the final definition in Rule 57Q(1)(b) of the Rules would apply in regard to the earlier period also and therefore, refractories must be taken to be capital goods during the relevant periods. The Id. Counsel further contended that the furnace used by the appellant was purchased as movable property and was duty paid and the mere circumstance that the furnace becomes immovable property on being installed, will not take the furnace out of the category of machine or machinery and therefore, the aspect of immovability is not relevant in deciding whether ^ the furnace or parts thereof are capital goods or not. Alternatively, the Id. Counsel contended that even assuming that Rule 57Q of the Rules is not attracted in the instant case, Rule 57A of the Rules would be attracted as Larger Bench of the Tribunal in Shri Ramakrishna Steel Industries Ltd. v. Collector of Central Excise, Madras(Tribunal) and Union Carbide India Ltd. v.Collector of Central Excise, Calcutta-I -1996 (86) E.L.T. 613 (Tribunal) held that while machines, machinery, plant and the like fall within the exclusion Clause (1) to the explanation to Rule 57A of the Rules, parts of such machines or machinery do not fall within the ambit of the exclusion clause and parts of machine and machinery would be inputs eligible for Modvat credit and therefore, since the refractories and binding accessories are parts of furnace which is a machine, Modvat credit would be available under Rule 57A of the Rules.

5. Shri Gurnani, JDR rebutted the above contentions and supported the reasoning and conclusion in the impugned order. He further contended that a manufacturer who has given declaration under Rule 57Q of the Rules cannot at this stage claim benefit of Modvat credit under Rule 57A of the Rules in the absence of an appropriate declaration filed at the appropriate time as required under Rule 57A of the Rules. In support of his contention he placed reliance on the decision of a learned Single Member of the Tribunal in Kakkar Complex Steels Pvt.

Ltd. v. Collector of Central Excise, ChandigarhMukund Iron and Steel Works Ltd. v. Collector of Central Excise - 1990 (45) E.L.T.84 (Tribunal); Mukund Iron and Steel Works Ltd. v. Collector of Central Excise -1990 (48) E.L.T. 552 (Tribunal) and Collector of Central Excise, Indore v. Raipur Alloy Steels Ltd. -1995 (78) E.L.T. 44 (Tribunal), refractory bricks are to be regarded as parts of machine, machinery or plant etc. In a decision earlier to these three decisions, there was a finding that the refractories used in the steel industry go in relation to the parts of machinery and equipment. In the last of the three decisions there is a detailed discussion of the nature and purpose of the refractory bricks.

"...The structural and mechanical parts of a modern electric arc furnace consists basically of a refractory lined shell and roof to contain the charge, and mechanisms to position the electrodes to maintain the arc for melting and refining, to tilt the furnace to tap and desilag, to remove the roof for top charging and to operate the doors of the shell.

...Refractories are used to line furnaces for melting metals and glass, in crucibles for inducing chemical reactions and for melting materials, as insulation in the walls of furnaces and kilns, and in other places where resistance to temperature and corrosion is required.

They constitute one of the most important and vital parts of the furnace installation." 8. The view taken in the above decisions on the question of law has been overruled by the Larger Bench of the Tribunal in the two decisions referred to above. But there should be no difficultly for us to appreciate the factual position in regard to refractories as explained in the aforesaid three decisions of the Tribunal. The Commissioner has not relied on any materials leading to an inference to the contrary.

The impugned order merely observed that refractories are used for the purpose of maintenance of the furnace. Perhaps, in the wider sense of the word refractories do contribute to maintenance of the furnace but as indicated in the passages quoted above, refractories are basically parts and important parts of furnace. The Larger Bench has held that while the machine, machinery, plant, equipment etc. are excluded from the purview of the Modvat scheme by virtue of exclusion Clause (1) of the explanation (1) to the explanation to Rule 57A of the Rules, parts of such machines or machinery do not fall within the ambit of the exclusion clause and parts of machine and machinery would be inputs eligible for Modvat credit and therefore, since the refractories and binding accessories are parts of furnace which is a machine, Modvat credit would be available under Rule 57A of the Rules.

9. What remains is the consideration of the stand taken by Shri Gurnani that since the appellant has not filed the declaration as required under Rule 57G(1) of the Rules, which is necessary for claiming the benefit of Modvat scheme under Rule 57A of the Rules, but has filed declaration only under Rule 57Q as a pre-condition for availing benefit of the Modvat scheme under Rule 57Q of the Rules, the benefit under Rule 57A cannot be availed by the appellant. Shri Gurnani placed reliance on the decision of the Single Member of the Tribunal in Kakkar Complex Steels Pvt. Ltd. v. Collector of Central Excise, Chandigarh - 1997 (90) E.L.T. 549 (Tribunal). In that case, the appellant availed Modvat benefit in respect of hot tops and refractory goods under Rule 57A of the Rules and the departmental authorities held that the appellant was not entitled to Modvat benefit. It was urged before the Tribunal that in any event, the appellant was entitled to the benefit of Rule 57Q of the Rules treating the goods as capital goods. It was held in Para 7 of the decision that declaration in respect of capital goods had been filed much after the date of taking Modvat credit and that the appellant's claim for benefit in terms of declaration filed under Rule 57G cannot be allowed.

10. We have to examine the facts and circumstances of the case to see whether the principle followed in the above decision can be applied in the present case. The three decisions of the Tribunal referred to earlier viz. two decisions relating to Mukund Iron & Steel Works Ltd. - 1990 (45) E.L.T. 84 (Tribunal) and 1990 (48) E.L.T. 552 (Tribunal) and the decision in the case of Collector of Central Excise, Indore v.Raipur Alloy Steels Ltd. - 1995 (78) E.L.T. 44 (Tribunal) clearly laid down that refractory bricks are not inputs admissible under the Modvat scheme of Rule 57A of the Rules and Modvat credit would not be available. It is explained by the appellant that in view of the position laid down as early as in 1990, there was no purpose in the appellant filing declaration under Rule 57G(1) to claim the benefit under Rule 57A of the Rules and accordingly the appellant filed declaration under Rule 57T of the Rules with a view to claim the benefit under Rule 57Q of the Rules treating refractories and binding accessories as components of machine for the purpose of Clause (1)(b) of the explanation to Rule 57Q of the Rules. He also pointed out that the position as laid down in the two decisions of the Mukund Iron and Steel Works Ltd. and in Raipur Alloy Steels Ltd. were overruled by a Larger Bench of the Tribunal quite recently and therefore, the appellant could not have filed the declaration under Rule 57G(1) of the Rules during the period covered by the dispute in these appeals. We are inclined to agree that in view of the decisions of the Tribunal referred to above, the appellant could not have filed declaration under Rule 57G(1) of the Rules in order to claim benefit under Rule 57A of the Rules and this special circumstance distinguishes the facts of the present case from the facts of the case in Kakkar Complex Steels Pvt.

Ltd. Whatever information the appellant was required to furnish under Rule 57G of the Rules had already been given in the declaration submitted under Rule 57T of the Rules and the same was subject to verification by the department. In the peculiar facts of the case, we hold that the Modvat benefit under Rule 57A of the Rules is admissible to the appellant notwithstanding the failure to file the declaration under Rule 57G(1) of the Rules. In this view, we feel it unnecessary to consider the dispute arising on the applicability or otherwise of Rule 57Q of the Rules.

11. For the reasons indicated above, we set aside the impugned orders and allow the appeals.