2002 (6) TMI 51 - HC - Central Excise

Court allows Modvat credit for Wire Mesh & Woollen Felts as 'inputs' under Central Excise Rules

The High Court held that Wire Mesh and Woollen Felts qualify as 'inputs' under Rule 57A of the Central Excise Rules, 1944, as they are used in the ... Cenvat/Modvat - 'Input' Issues Involved:1. Whether Wire Mesh and Woollen Felts are considered 'inputs' under Rule 57A of the Central Excise Rules, 1944.2. Interpretation of the exclusion clause in Rule 57A regarding 'machines, machinery, plant, equipment, apparatus, tools, or appliances.'Detailed Analysis:1. Whether Wire Mesh and Woollen Felts are considered 'inputs' under Rule 57A of the Central Excise Rules, 1944:The Customs, Excise and Gold (Control) Appellate Tribunal (CEGAT) concluded that Wire Mesh and Woollen Felts do not qualify as 'inputs' under Rule 57A. The Company, a manufacturer of paper and paperboards, had availed Modvat credit for these items, which was contested by the Central Excise authorities. The authorities issued a show-cause notice asserting that these items were inadmissible for Modvat credit. The Assistant Collector and the Collector of Central Excise (Appeals) upheld this view, and the CEGAT dismissed the Company's further appeal.The core of the issue revolves around the definition of 'inputs' under Rule 57A, which includes goods used 'in or in relation to the manufacture of the said final products.' The Supreme Court in J.K. Cotton Spinning and Weaving Mills Co. Ltd. v. S.T.O. emphasized that processes integral to the production of goods should be included in the term 'in the manufacture of goods.' Similarly, in Doypack Systems (Pvt.) Ltd. v. Union of India, the Court held that expressions like 'in relation to' should be interpreted broadly.The High Court of Andhra Pradesh, referencing these precedents, interpreted Rule 57A to include goods used in any activity concerned with or pertaining to the manufacture of finished goods. Wire Mesh and Woollen Felts, being essential in the paper manufacturing process, were deemed to be used 'in relation to the manufacture' of paper and paper products. Thus, they qualify as 'inputs' under Rule 57A.2. Interpretation of the exclusion clause in Rule 57A regarding 'machines, machinery, plant, equipment, apparatus, tools, or appliances':The exclusion clause in Rule 57A specifies that 'machines, machinery, plant, equipment, apparatus, tools, or appliances' used for producing or processing goods are not considered 'inputs.' The High Court analyzed whether Wire Mesh and Woollen Felts fall under this exclusion.The Court referred to the definitions of these terms in various dictionaries and legal precedents. It concluded that these terms generally denote self-contained, complete units or assemblies capable of performing a specific function. Wire Mesh and Woollen Felts, used in the paper-making machines, do not fit this description as they are replaceable parts rather than complete units.The Court emphasized that the Rule-making authority did not include 'parts thereof' in the exclusion clause, indicating a deliberate choice not to exclude parts like Wire Mesh and Woollen Felts. The absence of specific reference to spare parts in the exclusion clause further supported this interpretation.Conclusion:The High Court held that Wire Mesh and Woollen Felts used in machinery for manufacturing paper and paper products are eligible for Modvat credit under Rule 57A. These items do not fall within the exclusion clause of the Rule, as they are not self-contained units but parts used in relation to the manufacture of the final products. Consequently, the Court answered the referred question in the negative, in favor of the assessee and against the Revenue, thereby allowing the Modvat credit for these items.