2011 (11) TMI 354 - HC - Central Excise

High Court clarifies 'capital goods' definition under Central Excise Act, 1944

The High Court partially allowed the application, directing the Tribunal to refer substantial questions of law for further adjudication under the Central ... Cenvat / Modvat Credit - Capital Goods - Pollution Control Equipments such as machine, machinery, plant, equipment, apparatus - Tribunal held them as capital goods based on explanation to 57-Q(1) of rules - Held That:- In view of the decision of Apex Court in Central Excise, Coimbatore & Others v. Jawahar Mills Ltd. & Others (2001 - TMI - 45934 - SUPREME COURT OF INDIA) wherein it was held that, definition of capital good is very liberal and includes goods used in manufacture of final product directly - indirectly. - Tribunal directed to refer question of law to the HC. Issues:Interpretation of the definition of 'capital goods' under the Central Excise Rules, 1944 regarding pollution control equipments and material handling machinery/equipments.Analysis:The judgment involved a reference under Section 35-H (1) of the Central Excise Act, 1944, seeking clarification on whether pollution control equipments and material handling machinery/equipments qualify as 'capital goods' under the explanation to 57-Q (1) of the Central Excise Rules, 1944. The Tribunal had previously classified certain items, including pollution control equipments and material handling machinery/equipments, as 'capital goods'. However, the High Court found that while most items met the criteria for 'capital goods' as they were used for producing or processing goods, the classification of pollution control equipments and material handling machinery/equipments was questionable.The High Court analyzed the usage and function of the goods in question and concluded that pollution control equipments were primarily for maintaining an unpolluted atmosphere and not directly involved in the production or processing of goods. Similarly, the Court found a lack of explanation on how material handling machinery/equipments contributed to the production or processing of goods. Citing a Supreme Court decision, the Court highlighted the broad definition of 'capital goods' under the Central Excise Act, emphasizing that the goods should be used for producing or processing goods or bringing about changes in substances for the final product to qualify as 'capital goods'.Given the doubts raised regarding the classification of pollution control equipments and material handling machinery/equipments as 'capital goods', the High Court partially allowed the application, directing the Tribunal to provide a statement of facts and refer the substantial questions of law to the Court for further adjudication under the Central Excise Act, 1944. This decision aimed to clarify the interpretation of the definition of 'capital goods' in relation to the specific items in question, ensuring consistency and accuracy in their classification under the Central Excise Rules, 1944.