Commissioner of C.Ex. Vs. Thiru Arooran Sugars Ltd. - Court Judgment

Excerpt:
1. in these three appeals preferred by revenue and fourth cross appeal filed by m/s. thiru arooran sugars ltd. the issue involved is whether the modvat credit of duty paid on components used in the manufacture of boilers, steam turbines and pollution control equipments captively used for generation of steam and electricity which in turn is used for manufacture of sugar and molasses, is available to them.2.1. briefly stated the facts are that m/s. thiru arooran sugars ltd. are manufacturing sugar and molasses. they have filed declarations under rule 57t of the central excise rules for availing of capital goods credit under rule 57q in respect of the capital goods. they received boiler/boiler components, steam turbines/components/accessories and pollution control equipments/components/accessories for the purpose of manufacture and installation in their factory premises for generation of steam and electricity. the steam is used directly in the manufacture of sugar as well as for generation of electricity which in turn is to be used by the sugar factory and surplus electricity is sold to tamil nadu electricity board (tneb) and adjacent distillery unit. the assistant commissioner, under adjudication no. 180/95 dated 12.10.95, disallowed the capital goods credit to the assessee on the ground that capital goods credit under rule 57q has been made applicable for the boiler, boiler components, steam turbines and pollution control equipments, all falling under chapter 84 of the schedule of the central excise tariff act, only from 16.3.1995 under notification no. 11/95-ce-(nt) dated 16.3.95; that for the period prior to 16.3.1995, credit would not be allowed on the capital goods received into the plant; that as the major portion of electricity is to be sold to tneb which is outside the factory premises, credit on capital goods meant for co-generation plant is to be disallowed as per proviso to rule 57r; that as steam from boiler is not directly used for sugar manufacturing process, credit on boiler cannot be allowed. the assistant commissioner, however, allowed capital goods credit from 16.3.1995 in respect of pollution control equipments.2.2. the assessee filed a declaration dated 31.8.95 under rule 57g for claiming input credits on components of boilers, turbine and pollution control equipments. the assistant commissioner, under letter dated 18.10.95 returned the same to them stating that they were not the manufacturer of boilers, turbine and pollution control equipment.2.3. on appeal against these two orders, the commissioner (appeals) under the impugned order no. 30 to 31/96 dated 1.3.96, held that various parts, components and accessories, received prior to 16.3.1995, are in the nature of parts of capital goods used for production of electricity and not used in the manufacture of final products and accordingly prior to 16.3.95, their entitlement to capital goods credit cannot be upheld. the commissioner (appeals), however, agreed with the assessees that 'any other purpose' in the proviso to rule 57r(2) need not be within the factory of production as it is not borne out by the language used therein. he also allowed their second appeal filed against the rejection of declaration filed under rule 57g, holding that various parts received over a period of time were all inputs required for the production of co-generation plant; that just because sugar and molasses were their final product, it could not be said that the generating set, boilers and pollution control equipment were not some of their final products in the context of modvat scheme and consequently the assessees were eligible to input credit in terms of rule 57a as amended by notification no. 28/95 dated 29.6.1995 adding the words "whether directly or indirectly or whether contained in the final product or not". he finally held that the amended provision of rule 57d(2) would also be relevant to decide the issue.2.4. the revenue has preferred two appeals no. e/1563-1564/96 and the assessees have filed cross appeal no. e/co/2/2001.2.5. the assessee also filed declarations in respect of their second unit at kollumangudi which were not acknowledged by the assistant commissioner since the modvat credit had already been disallowed for the goods meant for co-generation plant under order no. 180/95. against this communication dated 20.3.96, the assessees went in appeal and commissioner (appeals), under second impugned order no. 127/96 (t) dated 25.6.96, remanded the matter to the assistant commissioner in terms of first impugned order no. 30 to 31/96 dated 1.3.96 and clarified that amended provisions of rule 57a were wide enough to cover various components and parts used in the setting up of a co-generation plant and as per amended proviso to rule 57d(2), input credit could not be disturbed on the ground that such inputs were used in the manufacture of capital goods, exempted for the time being.3. shri n. venkatraman, learned advocate for the assessees, submitted that the assessees manufacture sugar from sugarcane and in the process get a substantial quantity of baggasse; that the department of non-conventional energy sources of govt, of india did research work for utilising the baggasse as fuel and introduced a scheme in 1994 of capital subsidy for setting up demonstration plants; that they were selected for demonstration project; that as per tamil nadu govt's order no. 230 dated 16.6.1993, they entered into a power purchase agreement with tneb; that in this background they had procured various items of capital goods to set up a complete co-generation plant; that essentials of the total co-generation plant are boilers, turbo generator and pollution control equipment; that assembling/erection of these machinery commenced from november 1994 and commissioning was done in november, 1995 and may 1997 only; that co-generation scheme is an integrated activity connected directly with the manufacture of sugar.the learned counsel, further submitted that initially they filed a declaration under rule 57t for claiming capital goods credit; that after receipt of show-cause notice dated 31.5.95, they examined the provisions of modvat scheme again and realised that they were eligible to avail modvat credit of duty paid on the impugned components and parts under rule 57a of the central excise rules read with notification no. 67/95 dated 16.3.95 and amendment to rule 57d(2) by notification no. 17/95 (nt) dated 18.5.95; that accordingly they filed declaration under rule 57g; that in terms of rule 9 of the central excise rules, goods come into being only prior to their use; that as per explanation to rule 9, any excisable goods used within the factory of production for manufacture of any of the product shall be deemed to have been cleared as the co-generation plants were put to use only in nov. 1995 and may 1997, these showed (should) be deemed to have been removed only in nov. '95 and may '97; that the impugned components and parts are inputs under rule 57a for manufacture of boiler, turbine and pollution control equipments which are capital goods used within the factory of production; that notification no. 67/95-ce dated 16.3.1995 exempts capital goods as defined in rule 57q manufactured in a factory and used within the factory of production and accordingly boilers, turbine and pollution control equipments manufactured by them and used within the factory are exempted from payment of duty; that, however, this exemption would not disentitle them from availing of inputs credit under rule 57a, in view of the provisions of rule 57d(2). the learned counsel mentioned that rule 57d(2), after its amendment by notification no. 17/95-ce (nt) dated 18.5.1995 provided that "credit of specified duty allowed in respect of any inputs shall not be denied or varied on the ground that such inputs are used in the manufacture of capital goods as defined in rule 57q and that capital goods are for the time being exempt from the whole of duty of excise leviable thereon or chargeable to 'nil' rate of duty"; that third proviso to rule 57d(2) provides as under: provided also that the credit of specified duty shall be allowed in respect of inputs which are used for generation of electricity or steam used for manufacture of final products or for any other purpose within the factory of production.4. he also stated that the steam generated by boilers is initially used in the turbo generator and then is wholly employed in the manufacturing process of sugar; that steam is not removed outside the factory and accordingly the modvat credit in respect of inputs used in the manufacture of boilers cannot be denied to them; that the electricity is partly used within the factory and excess electricity is supplied to t.n.e.b; that under rule 57r, use of capital goods "exclusively" for the production of exempted final product, disentitles the capital goods from being eligible for capital goods credit; that as the electricity generated is partly used for manufacture of final products, it cannot be said that the turbine is used exclusively for the production of exempted goods and accordingly supply of a portion of electricity to the adjacent distillery unit or tneb would not vitiate their right to claim credit. he further contended that the following proviso was inserted in rule 57r (2) by notification no. 11/95 (nt) dated 16.3.95: provided further that credit of specified duty shall be allowed in respect of capital goods used for generation of electricity, used within the factory of production for manufacture of final products or for any other purpose.5. the learned counsel mentioned that a similar proviso was inserted in rule 57d(2). however, the said proviso to rule 57d(2) was further amended by notification no. 17/95 dated 18.5.1995; that a very major amendment was made only in the proviso to rule 57d(2) which now provided" used for manufacture of final products or for any other purpose, within the factory of production," that such an amendment has not been made in proviso to rule 57r(2) as the government is well aware that the electricity would be used outside the factory and it consciously avoided to amend proviso to rule 57r; that accordingly words "for any other purpose" cannot be confined to use within the factory of production. he thus contended that turbine is thus neither hit by provisions of rule 57r(1) nor by the proviso to rule 57r(2). the learned counsel relied upon the decision of the larger bench of the tribunal in the case of ballarpur industries ltd. v. cce, belgaum wherein it was held that rule 57d(2) does not set out the condition precedent for extending modvat credit and non-fulfilment of the condition of rule 57d(2) cannot result in disentitlement of an assessee to credit. he contended that similarly non-fulfilment of the condition of rule 57r will not make them ineligible to capital goods credit if it is available under rule 57q.star paper mills ltd. v. cce, meerut wherein it was held that modvat credit is not linked to direct use and this has been made clearer by sub-para 2 of rule 57d introduced vide notification no. 17/95 (nt).similar views were expressed in the case of cce, meerut v. star paper ltd. . it was held that the modvat credit would be admissible in respect of inputs used in manufacture of capital goods used within the factory for the manufacture of the final product.reliance was also placed on the case of cce, jaipur v. hindustan fibres ltd. 2000 (39) rlt 1104 (cegat).6.2. the learned counsel mentioned that tribunal in the case of cce, meerut v. gangeshwar ltd. , held that modvat credit is available in respect of boiler material in terms of rule 57d(2). the tribunal also allowed capital goods credit in respect of turbines used for generation of electricity which in turn was used for running the plant and machinery for manufacture of sugar. he also relied upon the decision in the following cases:cce, meerut v. triveni engg. works ltd. 1997 (96) elt 655 (t). boiler, being an integral part of plant and machinery used in manufacture of sugar, to be regarded as 'capital goods' even prior to 16.3.1995.jawahar mills ltd. v. cce 6.3. finally, the learned advocate relied upon the decision in the case of cce, meerut v. modi rubber ltd. 2000 (38) rlt 718 (cegat-lb) wherein it was held that if declaration has been filed for capital goods under rule 57q instead of as inputs under rule 57a, the modvat credit cannot be denied on the ground that the declaration was not in terms of rule 57a. reliance was also placed on the decision in madras aluminium co.ltd. v. cce, coimbatore, final order no.7. on the other hand, shri g. sreekumar menon, learned sdr reiterated the grounds of appeals as contained in the memorandum of appeals and emphasized that for eligibility to input credit under rule 57a, the conditions of rule 57c have to be satisfied; that in the present matters, the final products are sugar and molasses and not the co-generation plant for whose input credit is being sought for; that as per amendment in proviso to rule 57d(2), the electricity generated should be used within the factory of production whereas the major portion of electricity is used in distillery located separately and is supplied to tneb; that co-generation plant is not capital goods prior to 16.3.95 as boilers, turbines and pollution control equipments were included in the definition of capital goods only by notification no.11/95 (nt) dated 16.3.95. finally, the learned sdr prayed that the matters may be remanded to the adjudicating authority for determining all the points raised by the assessee and also for determining the use of electricity.8. we have considered the submissions of both the sides. the assessee wants to avail of modvat credit under rule 57a in respect of components/parts of boilers, turbine and pollution control equipments, collectively referred to as co-generation plant. the availability of modvat credit under rule 57a would depend on whether the goods manufactured by them are capital goods as defined in rule 57q since the benefit of notification no. 67/95-ce, dated 16.3.95 would be available only to 'capital goods as defined in rule 57q'. further, it is also the requirement of rule 57d(2) (as amended by notification no. 17/95 (nt) dated 18.5.95) that the inputs are used in the manufacture of capital goods "as defined in rule 57q". both asst. commissioner and commissioner (appeals) have given their findings that the boilers, turbines and pollution control equipments have been included in the definition of capital goods only from 16.3.95. both these orders were passed before the decision of the larger bench of the appellate tribunal in jawahar mills ltd. v. commissioner of central excise . the lower authorities are required to examine whether the impugned goods were "for producing or processing of any goods or for bringing about any change in any substance for the manufacture of final products." if the co-generation plant or boiler, turbine and pollution control equipments are meant for (i) producing or (ii) processing of any goods or (iii) for bringing about any change in any substance for the manufacture of final products, it is immaterial that these products were included in explanation to rule 57q(1) by notification no. 11/95-ce(nt) dated 16.3.1995 since the words used in explanation 1(a) to rule 57q(1) are without and (sic) [any] restriction except that the machine/machinery are used for producing or processing or bringing about any change. if any machine satisfies the criteria, it will be capital goods as per explanation 1(a). in view of this alone, the matter has to go back to the adjudicating authority to reconsider the matter in this lightand after taking into consideration the decisions which may be cited before him by both the sides.9. we also find that the various amendment made in rules and notification no. 67/95 relied upon were issued by the government in march and may 1995. it is, therefore, required to be examined as to when the boilers, turbine and pollution control equipments were manufactured. we find substance in the submissions of the learned advocate that as per explanations to rule 9 and 49, the excisable goods shall be deemed to have been removed from place of manufacture immediately before utilisation in case the excisable goods are utilised for the manufacture of any other commodity in the factory of manufacture. if such use was only after issue of notification no.67/95, then only the assessee can claim the benefit of exemption under the said notification. similarly, rule 57d(2) was substituted only by notification no. 17/95(nt) dated 18.5.1995. we, therefore, direct that the adjudicating authority would examine this aspect also and the assessee is at liberty to adduce any evidence in this regard before the adjudicating authority.10. another important aspect to be considered by the adjudicating authority on remand is whether boilers, turbine and pollution control equipments, manufactured by the assessee out of the impugned components/parts, etc., are excisable goods as both provisions of rule 57a and rule 57q apply to "excisable goods" and if these goods are not excisable goods, as interpreted by the courts/tribunal, the benefit of input credit/ capital goods credit will not be available. such an examination is necessary for examining the applicability of provisions of rule 57d(2) as the credit of specified duty shall not be denied or varied on the ground that inputs are used in the manufacture of capital goods which are for the time being exempt from the whole of the duty of excise leviable thereon or chargeable to 'nil' rate of duty -- if means that the capital goods which are manufactured should be (ii) (a) are exempt from the whole of the duty of excise leviable thereon; or these conditions are to be satisfied before the provisions of rule 57d(2) can be applied.11. ld. counsel for the assessee has argued that the word used in rule 57r(1) is "exclusively" and as the electricity generated by them is not exclusively given to tneb and partly it is used for manufacture of their final products, i.e. sugar and molasses, the mischief of rule 57r(1) would not apply to them. again we observe that the words used in rule 57r(1) are that the credit of the specified duty on the capital goods shall not be allowed if such capital goods are used exclusively for production of a final product which is exempt from the whole of the duty of excise leviable thereon. the adjudicating authority has to give his findings as to whether electricity is one of such product which is exempt from the whole of the duty of excise leviable thereon. lastly, we also find that proviso to rule 57r(2), as inserted by notification no. 11/95(nt), does not find place in rule 57r(2) as substituted by notification no. 6/97-ce (nt), dated 1.3.1997. it is also to be examined whether in absence of such a "proviso", credit of duty will be allowable in respect of capital goods used for generation of electricity. we also do not agree with the learned advocate for the assessee that words "or for any other purpose" are not confined to use within factory of production. he is interpreting these words in the light of amendment made in proviso to rule 57d(2) wherein the words used were "electricity or steam used for manufacture of final products or for any other purpose, within the factory of production." the difference in construction of provision is not relevant for interpretation as the wordings used in proviso to rule 57r(2) are also explicit that electricity is "used within the factory of production for manufacture of final products or for any other purpose." the place of use is specified as "within factory of production" but the application is either for "manufacture of final products or for any other purpose".there is no force in the argument that as the government is aware that the electricity will be used outside the factory also, provision of proviso to rule 57r(2) was not amended. if it was so, will not the same thinking of government be applicable in respect of input credit? this is also evident from the definition of inputs as given in explanation to rule 57a which provides as under: (d) inputs used for generation of electricity, used within the factory of production for manufacture of final products or for any other purpose.12. finally, we agree with the submission of the learned counsel for the assessee that modvat credit under rule 57a cannot be denied only on the ground that initially the declaration was only filed under rule 57q for claiming credit as capital goods credit in view of the decision of the larger bench in the case of cce, meerut v. modi rubber ltd. 2000 (38) rlt 718.13. all the three appeals filed by the revenue and cross appeal filed by the assessee are disposed of by remanding all the matters to the adjudicating authority for re-adjudication after considering the submissions made by both the sides in respect of the discussion made in this order.

Judgment:
1. In these three appeals preferred by Revenue and fourth cross appeal filed by M/s. Thiru Arooran Sugars Ltd. the issue involved is whether the Modvat Credit of duty paid on components used in the manufacture of boilers, steam turbines and pollution control equipments captively used for generation of steam and electricity which in turn is used for manufacture of sugar and molasses, is available to them.

2.1. Briefly stated the facts are that M/s. Thiru Arooran Sugars Ltd. are manufacturing sugar and molasses. They have filed declarations under Rule 57T of the Central Excise Rules for availing of capital goods credit under Rule 57Q in respect of the capital goods. They received boiler/boiler components, steam turbines/components/accessories and pollution control equipments/components/accessories for the purpose of manufacture and installation in their factory premises for generation of steam and electricity. The steam is used directly in the manufacture of sugar as well as for generation of electricity which in turn is to be used by the sugar factory and surplus electricity is sold to Tamil Nadu Electricity Board (TNEB) and adjacent distillery unit. The Assistant Commissioner, under Adjudication No. 180/95 dated 12.10.95, disallowed the capital goods credit to the assessee on the ground that capital goods credit under Rule 57Q has been made applicable for the boiler, boiler components, steam turbines and pollution control equipments, all falling under Chapter 84 of the schedule of the Central Excise Tariff Act, only from 16.3.1995 under Notification No. 11/95-CE-(NT) dated 16.3.95; that for the period prior to 16.3.1995, credit would not be allowed on the capital goods received into the plant; that as the major portion of electricity is to be sold to TNEB which is outside the factory premises, credit on capital goods meant for co-generation plant is to be disallowed as per proviso to Rule 57R; that as steam from boiler is not directly Used for sugar manufacturing process, credit on boiler cannot be allowed. The Assistant Commissioner, however, allowed capital goods credit from 16.3.1995 in respect of pollution control equipments.

2.2. The assessee filed a declaration dated 31.8.95 under Rule 57G for claiming input credits on components of boilers, turbine and pollution control equipments. The Assistant Commissioner, under letter dated 18.10.95 returned the same to them stating that they were not the manufacturer of boilers, turbine and pollution control equipment.

2.3. On appeal against these two orders, the Commissioner (Appeals) under the impugned Order No. 30 to 31/96 dated 1.3.96, held that various parts, components and accessories, received prior to 16.3.1995, are in the nature of parts of capital goods used for production of electricity and not used in the manufacture of final products and accordingly prior to 16.3.95, their entitlement to capital goods credit cannot be upheld. The Commissioner (Appeals), however, agreed with the assessees that 'any other purpose' in the proviso to Rule 57R(2) need not be within the factory of production as it is not borne out by the language used therein. He also allowed their second appeal filed against the rejection of declaration filed under Rule 57G, holding that various parts received over a period of time were all inputs required for the production of co-generation plant; that just because sugar and molasses were their final product, it could not be said that the generating set, boilers and pollution control equipment were not some of their final products in the context of modvat scheme and consequently the assessees were eligible to input credit in terms of Rule 57A as amended by Notification No. 28/95 dated 29.6.1995 adding the words "whether directly or indirectly or whether contained in the final product or not". He finally held that the amended provision of Rule 57D(2) would also be relevant to decide the issue.

2.4. The Revenue has preferred two Appeals No. E/1563-1564/96 and the Assessees have filed Cross Appeal No. E/CO/2/2001.

2.5. The assessee also filed declarations in respect of their second unit at Kollumangudi which were not acknowledged by the Assistant Commissioner since the Modvat Credit had already been disallowed for the goods meant for co-generation plant under Order No. 180/95. Against this communication dated 20.3.96, the assessees went in appeal and Commissioner (Appeals), under second impugned Order No. 127/96 (T) dated 25.6.96, remanded the matter to the Assistant Commissioner in terms of first impugned Order No. 30 to 31/96 dated 1.3.96 and clarified that amended provisions of Rule 57A were wide enough to cover various components and parts used in the setting up of a co-generation plant and as per amended proviso to Rule 57D(2), input credit could not be disturbed on the ground that such inputs were used in the manufacture of capital goods, exempted for the time being.

3. Shri N. Venkatraman, Learned Advocate for the Assessees, submitted that the assessees manufacture sugar from sugarcane and in the process get a substantial quantity of baggasse; that the Department of Non-Conventional Energy Sources of Govt, of India did research work for utilising the baggasse as fuel and introduced a scheme in 1994 of capital subsidy for setting up demonstration plants; that they were selected for demonstration project; that as per Tamil Nadu Govt's Order No. 230 dated 16.6.1993, they entered into a Power Purchase Agreement with TNEB; that in this background they had procured various items of capital goods to set up a complete co-generation plant; that essentials of the total co-generation plant are boilers, turbo generator and pollution control equipment; that assembling/erection of these machinery commenced from November 1994 and commissioning was done in November, 1995 and May 1997 only; that co-generation scheme is an integrated activity connected directly with the manufacture of sugar.

The learned Counsel, further submitted that initially they filed a declaration under Rule 57T for claiming capital goods credit; that after receipt of show-cause notice dated 31.5.95, they examined the provisions of Modvat Scheme again and realised that they were eligible to avail Modvat credit of duty paid on the impugned components and parts under Rule 57A of the Central Excise Rules read with Notification No. 67/95 dated 16.3.95 and amendment to Rule 57D(2) by Notification No. 17/95 (NT) dated 18.5.95; that accordingly they filed declaration under Rule 57G; that in terms of Rule 9 of the Central Excise Rules, goods come into being only prior to their use; that as per Explanation to Rule 9, any excisable goods used within the factory of production for manufacture of any of the product shall be deemed to have been cleared as the co-generation plants were put to use only in Nov. 1995 and May 1997, these showed (should) be deemed to have been removed only in Nov. '95 and May '97; that the impugned components and parts are inputs under Rule 57A for manufacture of boiler, turbine and pollution control equipments which are capital goods used within the factory of production; that Notification No. 67/95-CE dated 16.3.1995 exempts capital goods as defined in Rule 57Q manufactured in a factory and used within the factory of production and accordingly boilers, turbine and pollution control equipments manufactured by them and used within the factory are exempted from payment of duty; that, however, this exemption would not disentitle them from availing of Inputs Credit under Rule 57A, in view of the provisions of Rule 57D(2). The learned Counsel mentioned that Rule 57D(2), after its amendment by Notification No. 17/95-CE (NT) dated 18.5.1995 provided that "credit of specified duty allowed in respect of any inputs shall not be denied or varied on the ground that such inputs are used in the manufacture of capital goods as defined in Rule 57Q and that capital goods are for the time being exempt from the whole of duty of excise leviable thereon or chargeable to 'nil' rate of duty"; that third proviso to Rule 57D(2) provides as under: Provided also that the credit of specified duty shall be allowed in respect of inputs which are used for generation of electricity or steam used for manufacture of final products or for any other purpose within the factory of production.

4. He also stated that the steam generated by boilers is initially used in the turbo generator and then is wholly employed in the manufacturing process of sugar; that steam is not removed outside the factory and accordingly the Modvat credit in respect of inputs used in the manufacture of boilers cannot be denied to them; that the electricity is partly used within the factory and excess electricity is supplied to T.N.E.B; that under Rule 57R, use of capital goods "exclusively" for the production of exempted final product, disentitles the capital goods from being eligible for capital goods credit; that as the electricity generated is partly used for manufacture of final products, it cannot be said that the turbine is used exclusively for the production of exempted goods and accordingly supply of a portion of electricity to the adjacent distillery unit or TNEB would not vitiate their right to claim credit. He further contended that the following proviso was inserted in Rule 57R (2) by Notification No. 11/95 (NT) dated 16.3.95: Provided further that credit of specified duty shall be allowed in respect of capital goods used for generation of electricity, used within the factory of production for manufacture of final products or for any other purpose.

5. The learned Counsel mentioned that a similar proviso was inserted in Rule 57D(2). However, the said proviso to Rule 57D(2) was further amended by Notification No. 17/95 dated 18.5.1995; that a very major amendment was made only in the proviso to Rule 57D(2) which now provided" used for manufacture of final products or for any other purpose, within the factory of production," that such an amendment has not been made in proviso to Rule 57R(2) as the Government is well aware that the electricity would be used outside the factory and it consciously avoided to amend proviso to Rule 57R; that accordingly words "for any other purpose" cannot be confined to use within the factory of production. He thus contended that turbine is thus neither hit by provisions of Rule 57R(1) nor by the proviso to Rule 57R(2). The learned Counsel relied upon the decision of the Larger Bench of the Tribunal in the case of Ballarpur Industries Ltd. v. CCE, Belgaum wherein it was held that Rule 57D(2) does not set out the condition precedent for extending Modvat Credit and non-fulfilment of the condition of Rule 57D(2) cannot result in disentitlement of an assessee to credit. He contended that similarly non-fulfilment of the condition of Rule 57R will not make them ineligible to capital goods credit if it is available under Rule 57Q.Star Paper Mills Ltd. v. CCE, Meerut wherein it was held that Modvat credit is not linked to direct use and this has been made clearer by sub-para 2 of Rule 57D introduced vide Notification No. 17/95 (NT).

Similar views were expressed in the case of CCE, Meerut v. Star Paper Ltd. . It was held that the Modvat credit would be admissible in respect of inputs used in manufacture of capital goods used within the factory for the manufacture of the final product.

Reliance was also placed on the case of CCE, Jaipur v. Hindustan Fibres Ltd. 2000 (39) RLT 1104 (CEGAT).

6.2. The learned Counsel mentioned that Tribunal in the case of CCE, Meerut v. Gangeshwar Ltd. , held that Modvat credit is available in respect of boiler material in terms of Rule 57D(2). The Tribunal also allowed capital goods credit in respect of Turbines used for generation of electricity which in turn was used for running the plant and machinery for manufacture of sugar. He also relied upon the decision in the following cases:CCE, Meerut v. Triveni Engg. Works Ltd. 1997 (96) ELT 655 (T).

Boiler, being an integral part of plant and machinery used in manufacture of sugar, to be regarded as 'capital goods' even prior to 16.3.1995.Jawahar Mills Ltd. v. CCE 6.3. Finally, the Learned Advocate relied upon the decision in the case of CCE, Meerut v. Modi Rubber Ltd. 2000 (38) RLT 718 (CEGAT-LB) wherein it was held that if declaration has been filed for capital goods under Rule 57Q instead of as inputs under Rule 57A, the Modvat credit cannot be denied on the ground that the declaration was not in terms of Rule 57A. Reliance was also placed on the decision in Madras Aluminium Co.

Ltd. v. CCE, Coimbatore, Final Order No.7. On the other hand, Shri G. Sreekumar Menon, Learned SDR reiterated the grounds of appeals as contained in the Memorandum of Appeals and emphasized that for eligibility to input credit under Rule 57A, the conditions of Rule 57C have to be satisfied; that in the present matters, the final products are sugar and molasses and not the co-generation plant for whose input credit is being sought for; that as per amendment in proviso to Rule 57D(2), the electricity generated should be used within the factory of production whereas the major portion of electricity is used in distillery located separately and is supplied to TNEB; that co-generation plant is not capital goods prior to 16.3.95 as boilers, turbines and pollution control equipments were included in the definition of Capital Goods only by Notification No.11/95 (NT) dated 16.3.95. Finally, the learned SDR prayed that the matters may be remanded to the Adjudicating authority for determining all the points raised by the assessee and also for determining the use of electricity.

8. We have considered the submissions of both the sides. The assessee wants to avail of Modvat credit under Rule 57A in respect of components/parts of boilers, turbine and pollution control equipments, collectively referred to as co-generation plant. The availability of Modvat Credit under Rule 57A would depend on whether the goods manufactured by them are capital goods as defined in Rule 57Q since the benefit of Notification No. 67/95-CE, dated 16.3.95 would be available only to 'capital goods as defined in Rule 57Q'. Further, it is also the requirement of Rule 57D(2) (as amended by Notification No. 17/95 (NT) dated 18.5.95) that the inputs are used in the manufacture of capital goods "as defined in Rule 57Q". Both Asst. Commissioner and Commissioner (Appeals) have given their findings that the boilers, turbines and pollution control equipments have been included in the definition of capital goods only from 16.3.95. Both these orders were passed before the decision of the Larger Bench of the Appellate Tribunal in Jawahar Mills Ltd. v. Commissioner of Central Excise . The lower authorities are required to examine whether the impugned goods were "for producing or processing of any goods or for bringing about any change in any substance for the manufacture of final products." If the Co-generation plant or boiler, turbine and pollution control equipments are meant for (i) producing or (ii) processing of any goods or (iii) for bringing about any change in any substance for the manufacture of final products, it is immaterial that these products were included in Explanation to Rule 57Q(1) by Notification No. 11/95-CE(NT) dated 16.3.1995 since the words used in Explanation 1(a) to Rule 57Q(1) are without and (sic) [any] restriction except that the machine/machinery are used for producing or processing or bringing about any change. If any machine satisfies the criteria, it will be capital goods as per Explanation 1(a). In view of this alone, the matter has to go back to the Adjudicating authority to reconsider the matter in this lightand after taking into consideration the decisions which may be cited before him by both the sides.

9. We also find that the various amendment made in Rules and Notification No. 67/95 relied upon were issued by the Government in March and May 1995. It is, therefore, required to be examined as to when the boilers, turbine and pollution control equipments were manufactured. We find substance in the submissions of the learned Advocate that as per Explanations to Rule 9 and 49, the excisable goods shall be deemed to have been removed from place of manufacture immediately before utilisation in case the excisable goods are utilised for the manufacture of any other commodity in the factory of manufacture. If such use was only after issue of Notification No.67/95, then only the assessee can claim the benefit of exemption under the said Notification. Similarly, Rule 57D(2) was substituted only by Notification No. 17/95(NT) dated 18.5.1995. We, therefore, direct that the Adjudicating Authority would examine this aspect also and the Assessee is at liberty to adduce any evidence in this regard before the Adjudicating Authority.

10. Another important aspect to be considered by the Adjudicating Authority on remand is whether boilers, turbine and pollution control equipments, manufactured by the assessee out of the impugned components/parts, etc., are excisable goods as both provisions of Rule 57A and Rule 57Q apply to "Excisable goods" and if these goods are not excisable goods, as interpreted by the Courts/Tribunal, the benefit of Input Credit/ Capital Goods Credit will not be available. Such an examination is necessary for examining the applicability of provisions of Rule 57D(2) as the credit of specified duty shall not be denied or varied on the ground that inputs are used in the manufacture of capital goods which are for the time being exempt from the whole of the duty of excise leviable thereon or chargeable to 'nil' rate of duty -- If means that the Capital Goods which are manufactured should be (ii) (a) are exempt from the whole of the duty of excise leviable thereon; or These conditions are to be satisfied before the provisions of Rule 57D(2) can be applied.

11. Ld. Counsel for the Assessee has argued that the word used in Rule 57R(1) is "exclusively" and as the electricity generated by them is not exclusively given to TNEB and partly it is used for manufacture of their final products, i.e. sugar and molasses, the mischief of Rule 57R(1) would not apply to them. Again we observe that the words used in Rule 57R(1) are that the credit of the specified duty on the capital goods shall not be allowed if such capital goods are used exclusively for production of a final product which is exempt from the whole of the duty of excise leviable thereon. The Adjudicating Authority has to give his findings as to whether electricity is one of such product which is exempt from the whole of the duty of excise leviable thereon. Lastly, we also find that proviso to Rule 57R(2), as inserted by Notification No. 11/95(NT), does not find place in Rule 57R(2) as substituted by Notification No. 6/97-CE (NT), dated 1.3.1997. It is also to be examined whether in absence of such a "proviso", credit of duty will be allowable in respect of capital goods used for generation of electricity. We also do not agree with the learned Advocate for the Assessee that words "or for any other purpose" are not confined to use within factory of production. He is interpreting these words in the light of amendment made in proviso to Rule 57D(2) wherein the words used were "electricity or steam used for manufacture of final products or for any other purpose, within the factory of production." The difference in construction of provision is not relevant for interpretation as the wordings used in proviso to Rule 57R(2) are also explicit that electricity is "used within the factory of production for manufacture of final products or for any other purpose." The place of use is specified as "within factory of production" but the application is either for "manufacture of final products or for any other purpose".

There is no force in the argument that as the Government is aware that the electricity will be used outside the factory also, provision of proviso to Rule 57R(2) was not amended. If it was so, will not the same thinking of Government be applicable in respect of Input Credit? This is also evident from the definition of inputs as given in Explanation to Rule 57A which provides as under: (d) inputs used for generation of electricity, used within the factory of production for manufacture of final products or for any other purpose.

12. Finally, we agree with the submission of the learned Counsel for the assessee that Modvat credit under Rule 57A cannot be denied only on the ground that initially the declaration was only filed under Rule 57Q for claiming credit as capital goods credit in view of the decision of the Larger Bench in the case of CCE, Meerut v. Modi Rubber Ltd. 2000 (38) RLT 718.

13. All the three appeals filed by the Revenue and Cross Appeal filed by the Assessee are disposed of by remanding all the matters to the Adjudicating Authority for re-adjudication after considering the submissions made by both the sides in respect of the discussion made in this order.