Cce Vs. Cut Fast Abrasives Tools Ltd. - Court Judgment

Excerpt:
1. this revenue appeal, against the order-in-appeal no. 15/98(m-iii)(d) dt. 17.7.1998 passed by the commissioner (appeals), chennai, rejecting the revenue appeal which had challenged the grant of modvat credit by the assistant commissioner in respect of gauge system or digital detector system which is otherwise known as surface finish testing machines by treating it as capital goods. the department's view is that the said machine is an independent electronic test unit which does the function of testing the base materials, i.e. raw materials and the thickness of goods manufactured at every stage during the process; that it does not bring about any change in the final products nor can it be termed as a machine used for producing or processing of goods and therefore, cannot be given the status of capital goods. however, the department's views in the show cause notice was not accepted by the assistant commissioner after considering the detailed reply given by the assessee with regard to the function of the machine and explanation given that the terminology given to the machine as "testing" is a misnomer while in fact the machine was functioning along with coating machine whose function it monitors. it had been stated that the coating machine cannot function optimally unless there is a continuous monitoring to minimize irregularities. the assistant commissioner, in his detailed findings, accepted this view and held that the functioning of the coating machine and monitoring machine are inter dependent and inter-related. he also gave a finding that the machine is not test machine but a continuous para operational in tempere monitoring machine. he noted that it is a classic case of how a wrong name given can skew the view. he also noted that on dedection of non observance of the standards prescribed, the quality of the product that emerges is adversely affected and the very purpose of manufacture is thwarted. he has noted that the acid test of whether the monitoring machine is used for processing/produce the goods will have to be applied. coating the base material with abrasives as per the standards prescribed is the mission. coating alone cannot be viewed as a process, independent of continuous monitoring of such coating since without the latter, the former would not achieve the desired result. mere coating would not serve the purpose. coating to the required specified degree is essential. monitoring machine does just that and clearly it is used for processing the goods and producing the good which otherwise would not be marketable and would cease to be "goods" at all. therefore, after detailed analysis of the definition of capital goods and having function of the machine vis-a-vis the definition "process" and in the light of the calcutta high court judgment in the case of sri om prakash gupta v. commissioner of commercial tax reported in 1995 (16) stc 935 he has uphold the assessee's contention that the machine is within the definition of capital goods under rule 57q of the central excise rules.the commissioner after examining the grounds of the revenue rejected the revenue appeal on his finding that the testing is done on different stages to maintain the quality of the manufacture. he has noted that in the circumstances the machine has to be considered as capital goods.the quality abrasives are maintained by the testing. while upholding, he has noted that the issue is covered by the decision of the northern regional bench in the case of geep industrial syndicate ltd. v. cce, allahabad took through the grounds made out by the revenue in this case contening that in order to qualify for grant of modvat credit under rule 57q the machine has to perform any process for the completion of a finished product. the function of testing the base material does not bring out any change in the finished product nor can it be termed as machine used for producing or processing of the goods and therefore, the credit is to be denied.2. on the other hand, shri srinivasa raghavan, ld. counsel for the respondents pointed out that the grounds of appeal does not touch upon any of the findings rendered by the assistant commissioner who has given a categorical finding as to how the machine works along with the coating machine simultaneously in the manufacture of abrasives and it is nothing but capital goods. he pointed out that in the geep industrial syndicate ltd. v. cce (supra) case testing machines have held to be entitled for the benefit of credit as capital goods. the said judgment has been rendered in the light of the three supreme court judgments as noted therein and two high court judgments. therefore, the findings rendered therein that process of measuring and testing of various inputs as well as finished products being essential process in completion and manufacture of final products namely dry cell batteries; that in that case machine is to be considered as capital goods. he submits that this finding has not been contested in the grounds of appeal and therefore, the appeal is rejected.3. on careful consideration and perusal of both the sides arguments and records, i am satisfied that the original authority i.e. assistant commissioner has gone into great detail on the function of the machine and has found that the name testing machine is misnomer and in fact the machine works along with the coating machine and is essential for the manufacture of abrasives. the detailed findings given by the assistant commissioner on examining the process of manufacture has not been commented upon in the grounds of appeal. further, the commissioner (appeals) has examined the findings and the grounds made by the revenue in the light of the tribunal decision rendered in the geep industrial syndicate p. ltd. (supra) took up the very issue of grant of modvat credit to testing equipment/appliance and the same to be considered as capital goods for grant of benefit. the tribunal has gone into detail on this question and examining the issue in the light of the hon'ble apex court judgment and high court judgments and has noted that the process of testing and measuring of the various inputs namely dry cell battery is an essential process in the completion of final product.this is precisely discussed and arrived at by both the authorities in the present case after examining the process carried out by the impugned machine. therefore, the commissioner has rightly followed the ratio of the tribunal decision in the case of geep industrial syndicate ltd. case (supra). there is no merit in this appeal and hence the same is rejected.

Judgment:
1. This Revenue Appeal, against the Order-in-Appeal No. 15/98(M-III)(D) dt. 17.7.1998 passed by the Commissioner (Appeals), Chennai, rejecting the Revenue Appeal which had challenged the grant of Modvat credit by the Assistant Commissioner in respect of Gauge System or Digital Detector System which is otherwise known as Surface Finish Testing Machines by treating it as Capital Goods. The Department's view is that the said machine is an independent electronic test unit which does the function of testing the base materials, i.e. raw materials and the thickness of goods manufactured at every stage during the process; that it does not bring about any change in the final products nor can it be termed as a machine used for producing or processing of goods and therefore, cannot be given the status of capital goods. However, the department's views in the show cause notice was not accepted by the Assistant Commissioner after considering the detailed reply given by the assessee with regard to the function of the machine and explanation given that the terminology given to the machine as "testing" is a misnomer while in fact the machine was functioning along with coating machine whose function it monitors. It had been stated that the coating machine cannot function optimally unless there is a continuous monitoring to minimize irregularities. The Assistant Commissioner, in his detailed findings, accepted this view and held that the functioning of the coating machine and monitoring machine are inter dependent and inter-related. He also gave a finding that the machine is not Test Machine but a continuous para operational in tempere monitoring machine. He noted that it is a classic case of how a wrong name given can skew the view. He also noted that on dedection of non observance of the standards prescribed, the quality of the product that emerges is adversely affected and the very purpose of manufacture is thwarted. He has noted that the acid test of whether the monitoring machine is used for processing/produce the goods will have to be applied. Coating the base material with abrasives as per the standards prescribed is the mission. Coating alone cannot be viewed as a process, independent of continuous monitoring of such coating since without the latter, the former would not achieve the desired result. Mere coating would not serve the purpose. Coating to the required specified degree is essential. Monitoring machine does just that and clearly it is used for processing the goods and producing the good which otherwise would not be marketable and would cease to be "goods" at all. Therefore, after detailed analysis of the definition of Capital Goods and having function of the machine vis-a-vis the definition "process" and in the light of the Calcutta High Court judgment in the case of Sri Om Prakash Gupta v. Commissioner of Commercial Tax reported in 1995 (16) STC 935 he has uphold the assessee's contention that the machine is within the definition of Capital Goods under Rule 57Q of the Central Excise Rules.

The Commissioner after examining the grounds of the Revenue rejected the Revenue Appeal on his finding that the testing is done on different stages to maintain the quality of the manufacture. He has noted that in the circumstances the machine has to be considered as Capital Goods.

The quality abrasives are maintained by the testing. While upholding, he has noted that the issue is covered by the decision of the Northern Regional Bench in the case of Geep Industrial Syndicate Ltd. v. CCE, Allahabad took through the grounds made out by the Revenue in this case contening that in order to qualify for grant of Modvat Credit under Rule 57Q the machine has to perform any process for the completion of a finished product. The function of testing the base material does not bring out any change in the finished product nor can it be termed as machine used for producing or processing of the goods and therefore, the credit is to be denied.

2. On the other hand, Shri Srinivasa Raghavan, ld. Counsel for the Respondents pointed out that the grounds of appeal does not touch upon any of the findings rendered by the Assistant Commissioner who has given a categorical finding as to how the machine works along with the coating machine simultaneously in the manufacture of abrasives and it is nothing but Capital Goods. He pointed out that in the Geep Industrial Syndicate Ltd. v. CCE (supra) case testing machines have held to be entitled for the benefit of credit as capital goods. The said judgment has been rendered in the light of the three Supreme Court judgments as noted therein and two High Court judgments. Therefore, the findings rendered therein that process of measuring and testing of various inputs as well as finished products being essential process in completion and manufacture of final products namely Dry Cell Batteries; that in that case machine is to be considered as capital goods. He submits that this finding has not been contested in the grounds of appeal and therefore, the appeal is rejected.

3. On careful consideration and perusal of both the sides arguments and records, I am satisfied that the original authority i.e. Assistant Commissioner has gone into great detail on the function of the machine and has found that the name testing machine is misnomer and in fact the machine works along with the coating machine and is essential for the manufacture of abrasives. The detailed findings given by the Assistant Commissioner on examining the process of manufacture has not been commented upon in the grounds of appeal. Further, the Commissioner (Appeals) has examined the findings and the grounds made by the Revenue in the light of the Tribunal decision rendered in the Geep Industrial Syndicate P. Ltd. (supra) took up the very issue of grant of Modvat Credit to testing equipment/appliance and the same to be considered as capital goods for grant of benefit. The Tribunal has gone into detail on this question and examining the issue in the light of the Hon'ble Apex Court judgment and High Court judgments and has noted that the process of testing and measuring of the various inputs namely dry cell battery is an essential process in the completion of final product.

This is precisely discussed and arrived at by both the authorities in the present case after examining the process carried out by the impugned machine. Therefore, the Commissioner has rightly followed the ratio of the Tribunal decision in the case of Geep Industrial Syndicate Ltd. case (supra). There is no merit in this appeal and hence the same is rejected.