1996 (6) TMI 308 - AT - Central Excise

Section and chapter notes can aid interpretation; Rule 57A's Explanation doesn't exclude specified wires, meshes, or copper from Modvat credit

CEGAT held that rules of interpretation, section and chapter notes in the Tariff Act may be used as aids to construe notifications and Rules where ... Levy of duty - Modvat credit in respect of certain goods - spare parts of machinery - inputs not used in or in relation to the manufacture of final products - claimed as inputs as defined in Rule 57A of Central Excise Rules, 1944 - Applicability of aids like Rules of Interpretation, Section Notes, and Chapter Notes for construing terms in Rule 57A - whether the parts of the paper making machinery are eligible for Modvat credit under Rule 57A of the Central Excise Rules, 1944 (`Rules’), when machinery as such is not so eligible. K.S. Venkataramani Member (T) and K.S. Venkataramani President - HELD THAT:- We fail to see how it can be asserted that Rules of Interpretation, Chapter notes, Tariff headings and Sections contained in the Tariff Act are irrelevant in the context of understanding terms and expressions used in Rules or notifications. Relevance of such aids of interpretation depends upon the context, the clarity or otherwise of the language used in the provision under consideration, the extent to which aids of construction are needed, and whether the aid so available is repugnant in the context and other relevant factors. It cannot be dogmatically asserted that in all cases, such aids of construction are relevant or safe guide. Relevance or otherwise of these Rules and Section and Chapter Notes or any aid of construction depends on the context arising in a given case. We have indicated the manner in which and the purpose for which felts, Phosphor Bronze, Stainless steel wire cloth, wire mesh and Dandy cloth are used in the machines in the manufacture of paper or paper products. They are definitely parts of machines not comprehended by the exclusion Clause (i) of the Explanation to Rule 57A of the Rules. Therefore, spares of such goods cannot be regarded as falling within this clause. We have also indicated the manner in which and the purpose for which copper wire is used in the manufacture of metal containers. Copper wire so used cannot be regarded as part of the machine. However, it is contended on behalf of the Revenue that it is an “appliance” within the meaning of the expression used in the exclusion clause. “Appliance” as generally understood is any tool or machine that is used to carry out a specific task or produce a desired result or an equipment that draws electric or other energy and produces a desired result. Copper wire used in the manufacture of metal containers is not a “tool” or “machine” that is used to carry out a specific function; nor is it an `equipment’ that draws any energy in producing a desired result. Hence it cannot be regarded as an “appliance”. It does not fall within the ambit of any of the other expressions used in the exclusion clause. We hold as follows :– Rules of Interpretation, Section notes and Chapter notes in the Central Excise Tariff Act may be used as aids in construing Rules and Notifications where the language used in the latter is not clear and requires interpretation and the manner of use as aid and the extent to which the same would be useful depends upon the situation in a given case. Felts, Phosphor Bronze, Stainless steel, wire cloth, wire mesh and Dandy cloth used in machine or machinery in the manufacture of paper and paper products are eligible inputs under Rule 57A of the Rules. Such inputs are not excluded by virtue of the exclusion Clause (i) of the Explanation to the Rule. Copper wire used in the manufacture of metal containers is an eligible input under the said Rule and is not an `appliance’ and is not excluded by the exclusion Clause (i) of the Explanation to the Rule. Lajja Ram, Member (T) - With due respects, I am not able to persuade myself to agree with the order proposed. I record my order as under - HELD THAT:- There is no definition of the expression `inputs’ in the Rule’. It is to be understood only with reference to their usage in or in relation to the manufacture of the specified final products. This understanding is, however, subject to the specific inclusions and specific exclusions provided in the Explanation to Rule 57A. All the inputs used in or in relation to the manufacture of the specified final products are not eligible for credit under that Rule. The Explanation as provided in Rule 57A extends and restricts the coverage of Modvat credit in certain critical areas. The inclusions or exclusions are mainly in respect of certain groups or group of materials, and are not-notified with reference to particular tariff entries or specific well defined commodities. The final products - paper and paper boards are manufactured by using a group of machines, machinery and various other items constituting the machines, machinery and the plant. The prospective manufacturer organises purchases of different items of manufacturing apparatus from different sources. The various items are assembled and erected at the site. Each of these items when taken separately and individually may or may not be the machine or machinery. If the items like, felts, stainless steel wire cloth, wire mesh, dandy cloth etc. are missing, then the final product could not be produced and the desired purpose could not be served. There are various stages in the manufacture of the paper, such as, (i) processing of the raw materials, (ii) pulp making, fibre preparation and fibre bonding, (iii) formation of the paper web, sheet formation and drying, (iv) finishing, polishing, calendering, coating, (v) cutting, sorting, packing etc. In each of these stages of manufacturing different items, machines and machinery are used. Without these items, the machinery will not be able to serve the desired purpose and will not be a machinery for use in the manufacture of the paper. As machinery is excluded from the purview of the `inputs’ under Rule 57A, and as machinery is no machinery fit for production of the final products without the said items, such items stand excluded from the purview of the `inputs’ for the purposes of Rule 57A. There is no doubt that the goods felt, phosphorous berge, stainless steel wire, cloth mesh, dandy cloth etc. are not used directly in the manufacturing process, but participate in the manufacture of the final products through the machinery of which they are an essential requirements. Independently (without being a constituent of the machinery) they are not usable in relation to the manufacture of the paper. The coverage of the capital goods is different than the coverage of the inputs. A number of goods have been specifically included in the meaning of the capital goods for the purposes of the scheme under Section AAAA of the Rules. It is seen that the scheme under Rule 57Q is not akin to the scheme under Rule 57A and that it had no bearing on the interpretation of Rule 57A. In so far as the use of copper wire in the process of manufacture of metal containers is concerned, the situation is different. The copper wire is not a part of the machinery, but is used by the machinery in relation to the manufacture of the metal containers. I, therefore, agree with the conclusions drawn with regard to the copper wire being an admissible input. FINAL ORDER - Appeals are disposed of according to the majority view. Issues Involved:1. Eligibility of Modvat credit for certain inputs under Rule 57A of the Central Excise Rules, 1944.2. Interpretation of the exclusion clause in Rule 57A regarding machinery and its parts.3. Applicability of aids like Rules of Interpretation, Section Notes, and Chapter Notes for construing terms in Rule 57A.Summary:1. Eligibility of Modvat Credit for Certain Inputs:The appeals involve manufacturers of excisable final products who availed Modvat credit for certain goods claimed as inputs under Rule 57A of the Central Excise Rules, 1944. The Assistant Collectors disallowed the Modvat credit, and the Collector (Appeals) had conflicting views in different cases. The Tribunal had to decide whether items like spare parts of machinery, dryer felt, Phosphor Bronze, Metal cloth, and others used in manufacturing processes qualify as 'inputs' for Modvat credit.2. Interpretation of the Exclusion Clause in Rule 57A:The Tribunal examined the exclusion clause (i) of the Explanation to Rule 57A, which excludes '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 in or in relation to the manufacture of final products.' The Tribunal held that items like felt, Phosphor Bronze, stainless steel wire mesh, lin cloth, and Dandy cloth used in the paper-making process are 'goods used in relation to the manufacture of paper' and hence are 'inputs' under Rule 57A. However, the Tribunal clarified that spare parts of machinery do not fall under the exclusion clause as they are not self-contained units.3. Applicability of Aids for Construing Terms in Rule 57A:The Tribunal noted that Rules of Interpretation, Section Notes, and Chapter Notes in the Central Excise Tariff Act could be used as aids in construing Rules and Notifications where the language is unclear and requires interpretation. However, their relevance depends on the context and the clarity of the language used in the provision under consideration.Conclusion:The Tribunal concluded that:- Felts, Phosphor Bronze, stainless steel wire cloth, wire mesh, and Dandy cloth used in the manufacture of paper and paper products are eligible inputs under Rule 57A and are not excluded by the exclusion clause.- Copper wire used in the manufacture of metal containers is an eligible input and is not excluded as an 'appliance.'- The appeals were disposed of accordingly, with some appeals allowed and others dismissed based on the Tribunal's findings.Separate Judgment:Member (T), Lajja Ram, dissented, holding that parts of paper-making machinery are not eligible for Modvat credit under Rule 57A when machinery as such is not eligible. He agreed with the majority view only regarding the copper wire used in the manufacture of metal containers.