2009 (2) TMI 101 - AT - Central Excise

Plastic crates for internal transport and storage qualify as material handling equipment eligible for MODVAT credit as capital goods

CESTAT held that plastic crates used within the factory for internal transportation and storage constitute material-handling equipment integral to the ... Accessory - capital goods - input - in or in relation to manufacture - material handling equipment - Modvat credit - definition of capital goods under Rule 2(b) of Cenvat Credit Rules, 2002Accessory - capital goods - material handling equipment - definition of capital goods under Rule 2(b) of Cenvat Credit Rules, 2002 - Modvat credit - Whether plastic crates used within the factory as material handling devices qualify as capital goods by virtue of being accessories and thus entitle the assessee to Modvat credit - HELD THAT: - The Tribunal examined the statutory definition of 'capital goods' in Rule 2(b) and confined the dispute to whether the plastic crates fall within Sr. No. (iii) as 'components, spares and accessories' of goods specified at Sr. No. (i). Drawing on dictionary meanings and consistent judicial authorities, the Court adopted the established test that an 'accessory' is an object that, though not essential for basic functioning, contributes in a subordinate degree to the convenience, effectiveness or efficient working of a machine or process. Precedents of the Supreme Court and tribunals were applied to hold that accessories need not be indispensable or bespoke to a particular machine and may serve more than one instrument. The Court found that plastic crates, used for timely transportation and storage of raw, semi-finished and finished items within the production line, contribute to the effective functioning of the manufacturing process in a subordinate but material manner. Having applied the accessory test to the facts, the Tribunal held that the crates qualify as accessories and therefore fall within the ambit of capital goods under the Rule, making them eligible for Modvat credit as capital goods. [Paras 14, 19]Plastic crates are accessories to the machinery and qualify as eligible capital goods for Modvat credit.Input - in or in relation to manufacture - Modvat credit - material handling equipment - Whether plastic crates used for transport and storage within the factory are 'inputs' used 'in or in relation to the manufacture' of final products and thus eligible for Modvat credit as inputs - HELD THAT: - The Tribunal considered the definition of 'input' in Rule 2(g) and applied authoritative rulings construing the phrase 'in or in relation to manufacture' broadly to include processes integrally connected with production, such as handling, transfer and storage of raw materials and finished goods. Reliance was placed on Supreme Court and tribunal decisions holding that activities preparatory to and essential for continuous manufacture (including drawing, handling and transporting inputs) form part of the manufacturing process. The Court observed that proper storage and timely delivery of inputs to the production platform are integral to efficient manufacture and that plastic crates perform such functions. Applying that wide construction to the facts, the Tribunal concluded that the crates are used in relation to manufacture and therefore qualify as 'inputs' for entitlement to Modvat credit. [Paras 21, 24, 25]Plastic crates are also inputs used 'in or in relation to manufacture' and are eligible for Modvat credit as inputs.Final Conclusion: Modvat credit on plastic crates used as material handling equipment within the factory is allowable both as capital goods (being accessories) and as inputs (being used in or in relation to manufacture); the appeals are returned to the original Bench for disposal. Issues Involved:1. Availability of input credit for plastic crates as capital goods.2. Availability of input credit for plastic crates as inputs.Detailed Analysis:1. Availability of Input Credit for Plastic Crates as Capital GoodsThe primary issue was whether plastic crates used for internal transportation within the factory premises qualify for modvat credit as capital goods under Rule 2(b) of the Cenvat Credit Rules, 2002. The definition of capital goods includes goods falling under specified chapters and headings, pollution control equipment, and accessories of the specified goods.Definition and Interpretation of 'Accessory':- The term 'accessory' is interpreted based on various judicial precedents. According to Webster's Third New International Dictionary, an accessory is 'an object or device that is not essential in itself but that adds to the beauty, convenience, or effectiveness of something else.'- The Hon'ble Supreme Court's decisions in cases like M/s. Annapurna Carbon Industries Co. and M/s. Mehra Brothers provided significant insights. The Court held that accessories are supplementary or secondary to the primary equipment and contribute to its convenience or effectiveness.Judicial Precedents:- In M/s. Pragati Silicons Pvt. Ltd. v. CCE Delhi, the Supreme Court reiterated that an accessory is supplementary and not essential for the primary equipment's functioning but adds to its effectiveness.- The Tribunal's decision in M/s. Manipal Academy of Higher Education v. CC, Chennai, and other cases like M/s. Kellogg India Ltd. v. CCE, Mumbai-VIII, supported the view that material handling equipment like plastic crates qualify as accessories.Conclusion:Based on the interpretation of 'accessory' and judicial precedents, the plastic crates, used for transporting raw materials and finished goods within the factory, were held to be accessories to the main machinery. Thus, they qualify as capital goods under Rule 2(b) of the Cenvat Credit Rules, 2002, and are eligible for modvat credit.2. Availability of Input Credit for Plastic Crates as InputsThe alternative claim was whether plastic crates qualify for input credit under Rule 2(g) of the Cenvat Credit Rules, 2002. The definition of inputs includes all goods used in or in relation to the manufacture of final products, directly or indirectly.Judicial Precedents:- The Supreme Court in Collr. of C.E. v. M/s. Rajasthan State Chemical Works held that the expression 'in the manufacture of the goods' encompasses all processes directly related to production, including handling and transportation of raw materials.- In Collr. of C.E. v. M/s. Solaris Chemtech Ltd., the Court emphasized a broad interpretation of 'in or in relation to manufacture.'- The Tribunal's decision in M/s. Union Carbide India Ltd. v. CCE and other cases like CCE Bangalore v. M/s. Anglo French Drugs & Indus. Ltd. supported the view that equipment used for collecting, transporting, or dispensing materials are considered inputs.Conclusion:Applying the broad interpretation of 'in relation to manufacture,' the plastic crates used for transporting and storing raw materials and finished goods within the factory are integral to the manufacturing process. Therefore, they qualify as inputs under Rule 2(g) of the Cenvat Credit Rules, 2002, and are eligible for modvat credit.Final Decision:The Larger Bench concluded that modvat credit is available on the plastic crates used as material handling equipment in the factory premises both as capital goods and as inputs. Appeals were returned to the original Bench for disposal.