1999 (4) TMI 153 - AT - Central Excise

Rule 57Q: Wires, cables, control panels and similar items held as capital goods eligible for MODVAT credit

CEGAT held that, as per Rule 57Q (as it stood in 1994-95 and 1995-96), clause 1(a) covers machinery, plant, tools and appliances and thus items such as ... Eligibility or otherwise to the benefit of Modvat credit in terms of Rule 57Q - Interpretation of 'capital goods' - welding electrodes, wires and cables etc. - amendment in Rule 57Q which was made on 16-3-1995 is Prospective Or Retrospective in operation - principle of Noscitur a sociis - Revenue's stand is that items such as welding electrodes, wires, and cables are not 'capital goods' as per the explanation to Rule 57Q - HELD THAT:- The main contention is that clause 1(a) to Rule 57Q relates to production machinery used for bringing about any change in any substance for the manufacture of the final product. This is contrary to the plain language of clause 1(a). The first part of clause 1(a) does not confine itself to machinery. Apart from machinery, it refers to machine, plant, tools or appliances etc. Secondly, the second leg of clause 1(a) refers to three distinct expressions viz. (i) used for producing of goods for the manufacture of the final product (ii) used for processing of any goods for the manufacture of the final product and (iii) used for bringing about any change in any substance for the manufacture of the final product. When these three different and distinct expressions are used, it will not be possible and correct to construe the expression `used for producing of any goods for the manufacture of the final product’ as synonymous with `used’ for bringing about any change in any substance for the manufacture of the final product. Similarly, it would not be correct to construe the expression `used for processing of any goods for the manufacture of the final product’ as synonymous with `used for bringing about any change in any substance for the manufacture of the final product. The contention of the Revenue that clause 1(a) would confine itself to production machinery used for bringing about any change in any substance for the manufacture of the final product will also imply that the Supreme Court’s decision in Indian Farmers Fertilizer Coop. Ltd. [1996 (7) TMI 141 - SUPREME COURT] and J.K. Cotton Spg. & Wvg. Mills Co. Pvt. Ltd. [1964 (10) TMI 2 - SUPREME COURT] case extending the coverage of Section 8(3)(b) to items such as motor vehicles and locomotives, cane baskets, laboratory fittings, electricals humidifier exhaust fan and similar equipments, would be wrong, but this obviously is not permissible. In fact, precisely this contention was raised by the Revenue in Gujarat High Court in the Industrial Machinery Manufacturers Pvt. Ltd. [1963 (11) TMI 81 - GUJARAT HIGH COURT] case and was rejected by the High Court. It has been contended that producing means bringing into existence a new article from raw material and processing signifies an operation for bringing about any change in any substance for the manufacture of the final product. However, we are concerned with the meaning of the expression `used for producing or processing’. The said expression would not, to use the language of the Supreme Court in J.K. Cotton Spg. & Wvg. Mills Co. Pvt. Ltd. be limited to ingredients or commodities used in the process or those directly and actually needed for turning out or the creation of the goods. The principle of Noscitur a soccis can have no application whatsoever in the present situation. Three different expressions have been employed by the legislature obviously intending to cover three different situations and categories and they cannot be construed as synonymous. The DR raises the plea that Explanation 1(a) is restrictive in nature and not wide, however, the question is not whether Explanation 1(a) is restrictive or wide, but what is the true meaning and scope of the actual language used by Explanation 1(a). Wires and cables would be covered by the expression `plant’ being an item necessary for the assessee to carry on his business and being an item not in the nature of a consumable, but an item having fairly high degree of durability. It therefore, satisfies the definition of plant. Similarly, the other items involved in these cases namely control panels, cables, welding electrodes, etc. will also qualify as capital goods under Rule 57Q and would be eligible for Modvat credit and we order accordingly. We have to decide the matter according to the language of the provision as it stood at the material time. We are required to examine Explanation 1(a) as it stood in 1994-95 and 1995-96 and we therefore, see force in the contention of the assessees that the items which are recognised as eligible to capital goods credit by Notification 14/96 are items covered by Explanation 1(a) and it cannot be contended by the Revenue that these items are not covered by the Headings mentioned in Notification 14/96 or that the items are not capital goods within the meaning of Explanation 1(a) under Rule 57Q as it stood during the relevant period. The appeals are disposed of in the above terms. Issues Involved:1. Eligibility for Modvat credit u/s Rule 57Q of the Central Excise Rules.2. Interpretation of 'capital goods' within the meaning of Rule 57Q.3. Retrospective or prospective application of amendments to Rule 57Q.Summary:Issue 1: Eligibility for Modvat credit u/s Rule 57Q of the Central Excise RulesThe primary issue in these appeals is the eligibility for Modvat credit under Rule 57Q of the Central Excise Rules. The Revenue's stand is that items such as welding electrodes, wires, and cables are not 'capital goods' as per the explanation to Rule 57Q, which covers goods used only in production, processing, or bringing about any change in substance for the manufacture of the final product. The Revenue also contends that the amendment to Rule 57Q on 16-3-1995 is prospective, not retrospective.Issue 2: Interpretation of 'capital goods' within the meaning of Rule 57QThe Tribunal examined the definition of 'capital goods' as per Rule 57Q and relevant case laws, including the Supreme Court's judgments in Indian Copper Corporation Ltd. and J.K. Cotton Spinning & Weaving Mills Co. Ltd. The Tribunal concluded that the definition of 'capital goods' in Explanation 1(a) to Rule 57Q is similar to the provisions construed by the Supreme Court. The Tribunal held that items such as wires and cables, control panels, welding electrodes, etc., qualify as 'capital goods' under Rule 57Q and are eligible for Modvat credit.Issue 3: Retrospective or prospective application of amendments to Rule 57QThe Tribunal found that the issue of whether the amendments to Rule 57Q by Notification 11/95 dated 16-3-1995 and Notification 14/96-C.E. dated 23-7-1996 are retrospective or prospective becomes academic. The Tribunal decided the matter based on the language of the provision as it stood at the material time, concluding that the items recognized as eligible for capital goods credit by Notification 14/96 are covered by Explanation 1(a) to Rule 57Q as it stood during the relevant period.Conclusion:The appeals are disposed of with a ruling that items such as wires and cables, control panels, welding electrodes, etc., qualify as 'capital goods' under Rule 57Q and are eligible for Modvat credit. The Tribunal's decision is based on the interpretation of the provision as it stood at the relevant time, making the retrospective or prospective application of amendments academic.