2011 (8) TMI 4 - SC - Central Excise

December 1996 circular covers July-September 1999, but Rule 57Q excludes Chapter 73 iron and steel structures from machinery exemption

Saraswati Sugar Mills Versus Commissioner of Central Excise, Delhi-III

SC held that the December 1996 circular applied to the July-September 1999 period and, although the Tribunal erred in rejecting reliance on that circular, ... Demand - Classification of Iron and Steel structures - capital goods under Rule 57Q - Applicability of exemption notification No.67/1995 dated 16.03.1995 - Circular No. 276/110/96-TRV dated 02.12.1996 - scope of the term 'components' - Held that:- The period in dispute is July 1999 to September 1999. The Circular is dated 02.12.1996. Therefore, it was applicable to the disputed period. It is not disputed and it cannot be disputed that the Circular provides that all parts, components, accessories, which are to be used with the capital goods of Clauses (a) to (c) of Explanation (1) of Rule 57Q and classifiable under any Chapter heading are eligible for availing of MODVAT Credit. However, while denying exemption under the notification, the Tribunal has concluded that the goods in question, which comes under Chapter Heading 73 of the Tariff Act has not been specified in the table below rule 57Q. We do not find fault with the reasoning of the Tribunal, since the Circular, on which reliance is now placed by the learned counsel, was not produced before the Tribunal and, therefore, going by the language employed in Rule 57Q, there is justification for the Tribunal for coming to the aforesaid conclusion. Since in view of the circular, which is now brought to our notice, the Tribunal was not correct to reject the claim of the assessee on the aforesaid ground. However, this finding of ours will not assist the assessee, since we have held that Iron and Steel structures are not the components of machineries used in the installation of Sugar Manufacturing Plant - Decided against the assessee. Issues Involved:1. Classification of Iron and Steel structures as capital goods under Rule 57Q of the Central Excise Rules, 1944.2. Applicability of Notification No. 67/95-CE dated 16.03.1995 for exemption from excise duty.3. Interpretation and scope of the term 'components' under Rule 57Q.4. Eligibility for MODVAT credit for fabricated Iron and Steel structures.5. Consideration of additional arguments not raised before the Tribunal.Issue-wise Detailed Analysis:1. Classification of Iron and Steel Structures as Capital Goods:The primary issue was whether Iron and Steel structures manufactured and used captively in the factory for installation of the Sugar manufacturing plant by the assessee can be classified as capital goods under Rule 57Q of the Central Excise Rules, 1944. The Tribunal held that these structures could not be classified as capital goods since they are not specified in the Table below Rule 57Q and the machineries purchased by the assessee were complete in themselves. The Tribunal reasoned that the structures were not components of the various machineries, as the machineries were already complete without them.2. Applicability of Notification No. 67/95-CE:The Notification exempts capital goods, as defined in Rule 57Q, manufactured and used within the factory from excise duty. The Assistant Commissioner and the Tribunal both concluded that the Iron and Steel structures did not qualify for this exemption because they were neither inputs used in relation to the manufacture of the final product nor capital goods as defined in Rule 57Q. The Tribunal upheld the demand of excise duty and reduced the penalty imposed on the assessee.3. Interpretation and Scope of the Term 'Components':The term 'components' was central to the dispute. The court referred to various dictionaries and legal precedents to define 'components' as integral parts necessary for the constitution of the whole article. The court concluded that Iron and Steel structures did not satisfy the description of 'components' as they were not integral parts of the sugar manufacturing unit's essential machinery like vacuum pans, crystallizers, etc. The court emphasized that components are items or parts used in the manufacture of the final product, without which the final product cannot be conceived.4. Eligibility for MODVAT Credit:The assessee argued that Iron and Steel structures should be eligible for MODVAT credit as they are components of the sugar manufacturing plant. The court referred to a CBEC Circular dated 02.12.1996, which clarified that all parts, components, accessories used with capital goods specified in Rule 57Q are eligible for MODVAT credit, irrespective of their classification. However, the court found that the Tribunal was justified in its conclusion since the circular was not produced before the Tribunal and the Iron and Steel structures were not considered components of the machineries used in the sugar manufacturing plant.5. Consideration of Additional Arguments:The assessee also argued that Iron and Steel structures could be classified under sub-heading 7308.50 of Chapter 73 of the Tariff Act, which attracts a nil rate of duty. However, this argument was not raised before the Tribunal, and the court refused to consider it for the first time. The court rejected this contention, emphasizing that new arguments cannot be introduced at the appellate stage.Conclusion:The court concluded that Iron and Steel structures are not essential components of the sugar manufacturing unit and do not qualify for exemption under Notification No. 67/95-CE. The Tribunal's decision to uphold the demand of excise duty and reduce the penalty was affirmed. The court also noted that the CBEC Circular, while relevant, did not alter the conclusion since the structures were not considered components of the machinery. The appeal was dismissed, and costs were made easy.