2001 (7) TMI 118 - SC - Central Excise

Under Rule 57Q, capital-goods status depends on user; failure to raise user objection forfeits it, appeal dismissed

SC held that under Rule 57Q the determination whether an item qualifies as capital goods depends on its user, but on these facts the revenue consistently ... Interpretation of Rule 57Q regarding availing of Modvat credit - definition of 'Capital goods' - Whether the items were 'Capital goods' or not within the meaning of Rule 57Q? - Held that:- The submission is that parts of the items in respect whereof availing of Modvat credit has been allowed by the Tribunal could not be treated as 'Capital goods' as the manufacturer could not establish that the entire item was used in the manufacture of final product. To illustrate his point, Mr. Rohtagi submitted that part of a cable may go into the machine used by the manufacturer and, thus, may qualify the requirement of clause 1(a) and, at the same time, another part of the cable which is used only for lights and fans would not so qualify. We have no difficulty in accepting the contention of the learned Additional Solicitor General that, under these circumstances, user will determine whether an item qualifies or not the requirement of clause 1(a). However, in the present cases this aspect has no relevance. It was not the case of the revenue at any stage before the authorities that an item does not satisfy the requirement of 'Capital goods' within the meaning of the Rule on the ground of its user as it now sought to be urged by the learned counsel. The case of the revenue has all through been that the items in question per se are not 'Capital goods' within the meaning of the expression as defined in Explanation 1(a). In respect of the cables of which Mr. Rohtagi gave example, the stand of the revenue before the Tribunal was that the cables per se cannot be treated as 'Capital goods'. The stand of the revenue was not as has been projected now by Mr. Rohtagi. In this view, the question of directing remand of these matters for fresh decision by the Tribunal does not arise. On the facts and circumstances of these cases, therefore, the stand that the items in question are not used for manufacture of final product cannot be accepted for the reasons aforestated. Revenue appeal dismissed. Issues:Interpretation of Rule 57Q regarding availing of Modvat credit for certain items treated as 'Capital goods' by manufacturers.Analysis:In a batch of appeals, the main issue revolved around whether certain items qualified as 'Capital goods' under Rule 57Q of the Central Excise Rules, 1944, enabling manufacturers to claim Modvat credit for duty paid on such goods used in their factories. The definition of 'Capital goods' in the Explanation to Rule 57Q included machines, machinery, plant, equipment, tools, and appliances used for production or processing, along with components, spare parts, and accessories. The Tribunal, in a common judgment, ruled in favor of the manufacturers, rejecting the revenue's contention that the items in question did not meet the definition of 'Capital goods' as per the Explanation.The definition of 'Capital goods' under Rule 57Q was found to be broad, encompassing various items used in the manufacturing process. Any goods used for production, processing, or bringing about changes in substances for the manufacture of final products were considered 'Capital goods' eligible for Modvat credit. The Tribunal's decision was supported by a liberal interpretation of the provision, emphasizing the expansive language used in the Explanation.A prior case involving the interpretation of an exemption notification was cited to illustrate the importance of interpreting legal provisions liberally. The Court emphasized giving due weight to the language used in legal texts to ensure a broad and inclusive interpretation. The contention that decisions cited by the Tribunal involved different tax matters was dismissed, emphasizing the importance of principles laid down in legal decisions regardless of the specific context.Regarding the revenue's argument that the user of items determined their qualification as 'Capital goods,' it was clarified that the focus of the case was on whether the items themselves met the definition as per the Rule, not solely on their use in the manufacturing process. The revenue's contention that certain parts of items did not qualify as 'Capital goods' based on their specific use was rejected, as the primary argument had always been about the items' inherent classification.Ultimately, the appeals of the revenue were found to lack substance, leading to their dismissal. The special leave petitions were disposed of accordingly, with each party bearing their own costs. The judgment upheld the Tribunal's decision in favor of the manufacturers regarding the classification of items as 'Capital goods' for availing Modvat credit under Rule 57Q.