TaxTMI 
TaxTMI 
1996 (6) TMI 308
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....learned counsels appearing for the various appellants Shriyuts Lakshmi Kumaran, R.C. Gupta, Arun Mehta, S.K. Bagaria, K.K. Kapoor, T. Gunasekaran, G. Prabhakara Sastry, C. Willingdon and the Senior Departmental Representative, Sri Sanjeev Sachdeva. 2. The respondent in Appeal E.332/94 and the appellants in other appeals are manufacturers of excisable final products. They availed Modvat credit in respect of certain goods claimed as inputs as defined in Rule 57A of Central Excise Rules, 1944. The jurisdictional Assistant Collectors disallowed Modvat credit. In the case relating to appeal E.332/94, the Collector (Appeals) set aside the order, holding that the respondent was entitled to benefit of Modvat credit while the Collector (Appeals) in the other cases confirmed the orders disallowing the benefit of Modvat credit. In a few of the cases, Modvat credit was disallowed on the ground that the goods in respect of which credit was claimed were spare parts of machinery which attract the exclusion clause (i) of explanation to sub-rule (1) of Rule 57A of the orders. In some of the cases, it was held that the goods claimed to be inputs were not used in or in relation to the manufac....
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....rovision is subject to the provisions of the other Rules in the section and the conditions and restrictions that may be specified. Relevant portion of the Explanation to Rule 57A reads thus : "Explanation :- For the purpose of this rule, "inputs" includes - (a) xxx xxx xxx xxx (b) xxx xxx xxx xxx  but does not include - (i) machines, machinery, plant, equipment, apparatus, tools or appliances used for producing or processing of any goods or for bringing about any change in any substance in or in relation to the manufacture of final products; (ii) xxx xxx xxx xxx (iii) xxx xxx xxx xxx (iv) xxx xxx xxx xxx (v) xxx xxx xxx xxx" (Emphasis supplied) 5. The earliest decision of the Tribunal having a bearing on the question in controversy is Cominco Binani Zinc Ltd. v. Collector of Central Excise - 1990 (48) E.L.T. 283 (SRB). Claim for Modvat credit was made in respect of duty paid on Aluminium sheets used as cathodes in electrolysis processing for manufacture of unwrought zinc. By constant use sulphur ions get deposited on the sheets and thereby their utility is reduced and periodically the sheets would be discarded and sold as sc....
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....om time to time are to be regarded as used in relation to the machinery and not in relation to the manufacture of the final products. Reliance was placed on the decisions of the Supreme Court in J.K. Cotton Spinning and Weaving Mills Co. Ltd. v. S.T.O. - AIR 1965 S.C. 1310 and Collector of Central Excise v. Eastern Paper Industries Ltd. - 1989 (43) E.L.T. 201 (S.C.) = 1990 (26) ECR 10. The Bench did not notice its own earlier decision in Cominco Binani Zinc Ltd. v. Collector of Central Excise - 1990 (48) E.L.T. 283. 7. The Eastern Regional Bench which took note of the decision in Andhra Pradesh Paper Mills Ltd. v. Collector of Central Excise - 1990 (50) E.L.T. 252 declined to follow it in Straw Products Ltd. v. Collector of Central Excise - 1992 (59) E.L.T. 572. The Bench also relied on the decision of the Supreme Court in J.K. Cotton Spinning and Weaving Co. Ltd. v. Collector of Central Excise - AIR 1965 S.C. 1310 and approved the earlier decision of the Tribunal. The case related to chemicals and resins used by the manufacturer for treatment of water in the course of manufacture of paper and also felt and wire netting of stainless steel and phosphor bronze used in the man....
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....ng raw materials into finished goods. Where any particular process is so integrally connected with the ultimate production of goods that but for that process, manufacture or processing of goods would be commercially inexpedient, goods required in that process would, in our judgment, fall within the expression "in the manufacture of goods." The Court gave the example of various processes raw cotton is subjected to before it is converted into yarn and yarn is converted into textiles and indicated that the processes would be regarded as integrated processes and included in the "manufacture" of cloth. The Court further observed as follows :- "In our judgment if a process or activity is so integrally related to the ultimate manufacture of goods so that without that process or activity manufacture may, even if theoretically possible, be commercially inexpedient, goods intended for use in the process or activity as specified in Rule 13 will qualify for special treatment." The Supreme Court also observed that there is no warrant for limiting the meaning of expression "in the manufacture of goods" to the process of production of goods only. The expression "in the manufacture" takes....
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....ould be so essential for the chemical processes culminating in the emergence of the desired end-product, that, having regard to its importance in and indispensability for the process, it could be said that its very consumption on burning up is its quality and value as raw-material. In such a case, the relevant tests is not its presence in the end-product, but the dependence of the end-product for its essential presence at the delivery end of the process. The ingredient goes into the making of the end-product in the sense that without its absence the presence of the end-product, as such, is rendered impossible. This quality should coalesce with the requirement that its utilisation is in the manufacturing process as distinct from the manufacturing apparatus." Referring to the decision in Deputy Commissioner of Sales Tax v. Thomas Stephen and Company Ltd. - 1988 (34) E.L.T. 416 (S.C.) = J.T. 1988 I S.C. 631 where it was held that cashew shells used as fuel in the kiln used for manufacture of tiles were not excisable to purchase tax as "goods consumed in the manufacture of other goods" under Section 5A(1)(a) of Kerala General Sales Tax Act, 1963, the Court indicated that the observa....
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....s indicated that indisputedly ramming mass, dolopatch mix and manganese peas are "inputs" within the meaning of the Rule. The true question according to the Court is - "are the items inputs at all in respect of steel ingots?" and if the question is answered in the affirmative, the next question is "are the items within the excluded inputs?" The Court held - "Analysing the meaning of inputs as provided in the explanation it would appear that everything is an input if it is (i) manufactured and used within the factory of production or (ii) used in relation to the manufacture of the final products, and, (iii) paints and packaging material. The exceptions relate to items which would otherwise have come within the inclusive definition of inputs." (Emphasis supplied) and "The subject of the legislature appears to me to be to exclude from the genus of inputs, the species mentioned in the excluded categories because otherwise a manufacturer would be entitled to claim Modvat in respect of such inputs repeatedly as these would not be inputs which would be consumed in the process of manufacture. This is clear from a scrutiny of the excluded items." The Court further he....
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....appellant, manufacturer of cosmetics, used duty paid plastic granules to manufacture plastic containers and used the same as containers for the excisable final product, namely, cosmetics. The Court held that the cosmetic items are not marketable unless packed in containers which have to be treated as component part of the final product and that wider connotation should be given to the words "goods used in or in relation to the manufacture" of final product. Plastic granules would be component parts of the final product. The Court also relied on some of the chapter notes. 16. Under Rule 57A, inputs are not only goods used in the manufacture of final products, but also goods used in relation to the manufacture of final products. The same language is used in exclusion [clause] (i) of the explanation to the Rule. The words "goods ..... used by him (dealer) in the manufacture or processing of goods" occurring in Section 8(3)(b) of the Central Sales Tax Act and Rule 13 of the Rules have been held by the Supreme Court to take in not only the process of production of goods but also all processes which are directly related to the actual production. The Court held that there was no w....
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....ve been held to be goods used "in relation" to the manufacture of finished goods. The High Court explained that the exclusion clauses of the Explanation to Rule 57A relate to items which would otherwise have come within the definition of inputs. This would mean that machine, machinery and other goods referred to in exclusion Clause (i) would, but for the exclusion fall, within the ambit of the expression "inputs" that is, "goods used in relation to the manufacture of finished products". The Court stated that it does not matter that the goods are used in the machinery or for the purpose of the machinery. In the absence of any contrary decision of the Supreme Court or any other High Court, the Tribunal is required to follow this decision of the High Court of Calcutta. It would be an act of Judicial indiscipline and impropriety not to follow the only decision of a High Court on this aspect as suggested by the Western Regional Bench in the order of reference reported in 1993 (68) E.L.T. 452. The contention of the assessee is supported by the decision of a larger Bench of the Tribunal in Joy Foam Pvt. Ltd. v. C.C.E., Madras - 1996 (63) ECR 630 (Tribunal), SRB holding that grease proof p....
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....e appeals, the goods stated to be "inputs" is copper wire used in the manufacture of metal containers. The appellant who manufactures metal containers, prints on the metal containers name and the other particulars as per the requirements of the customer. Thin sheets are cut according to required size and the blanks are formed into cylinder and welded. For the process of welding two copper wires are passed between the two weld wheels. A.C. current is generated in the weld wheels as a result of which heat is generated. The copper wire takes away the excess molten tin at the junction of the two ends of the tin and the heated soft edges of the tin sheets joined are together. The copper wire comes out at the other end with small particles of tin deposits. This copper wire cannot be used again and is disposed of as copper waste. It is stated that the Department has accepted the same as copper waste for the purpose of clearance on duty. The copper wire is not consumed in the course of manufacture. It becomes waste by deposit of particles of tin and has to be replaced. Though it cannot be said that copper wire is used in the manufacture of metal container in the sense that it is raw materi....
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....ts ambit. Capital goods are brought within the ambit of a scheme similar to Modvat scheme by Rule 57Q. Rule 57Q inter alia, allows credit of specified duty paid on capital goods (as defined therein) used by the manufacturer in his factory to be utilised towards payment of duty leviable on final products falling within the description specified in the annexure. `Capital goods' as defined include, inter alia, machines, machinery, plant and equipment, apparatus, tools or appliances (all the goods specified in exclusion Clause (i) of the Explanation to Rule 57A used for producing or processing of any goods for bringing about any change in any substance for the manufacture of final products, and components, spare parts and accessories of the aforesaid machines and other capital goods used for the aforesaid purpose. Hence the contention that any understanding of Rule 57A as conferring Modvat benefit on specified duty paid on parts of machines or machinery, plant, equipment, apparatus, appliances, tools used not in the manufacture of machines, machinery, but in the manufacture of final products using such machines, machinery, equipment etcetra will lead to untenable result, is not tenable....
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.... Tool : A portable and usually hard-held instrument that is used to increase the efficiency of a work effort. Words and Phrases, Permanent Edition - Vol. 7A : Apparatus : It means a collection or set of materials, implements or utensils for a given work, a complex device or machine or a set of tools, appliances, any complex instrument for a specific action or operation, machinery or mechanism. Appliance : is generally considered to be any house hold or office utensil, apparatus or instrument or machine that utilizes a power supply, especially electric current e.g. vaccum cleaners refrigeration, toaster, air-conditioner. Machine : is a mechanical contrivance that modifies, utilizes or applies energy or force for a useful purpose or function. It includes every mechanical device or contrination of mechanical powers and devices used to perform some functions or and produces a certain effect or result. Machinery : means machines in general or collectively; also the working parts of a machine, engine or instrument; as the machinery of a watch. The means and appliances by which anything is kept in action or a desired r....
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....e category of Industrial paper. In the context, the Court held that the "noscitur a sociis" principle was applicable. The principle is that when two or more words which are susceptible of analogous meaning are coupled together they are understood to be used in their cognate sense. They take, as it were, their colour from each other, that is, the more general is restricted to a sense analogous to the less general. Associated words take their meaning from one another under this principle, according to which, the meaning of a doubtful word may be ascertained by reference to the meaning of words associated with it. When certain essential features or attributes are invariably associated with the words under consideration as understood in the popular and conventional sense, it is the colour of these attributes which is taken by the other words used in the definition though their normal import may be much wider. This, of course, is only a Rule of construction which has no place in a context where it is clear that wider words have been deliberately used to make the scope of the defined word wider. The Rule of Ejusdem Generis is a specific application of the broader principle of the "noscit....
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....If, however, the parts are brought in C.K.D. condition, credit of duty paid on the C.K.D. packages is not used to pay duty on the machine since there is no "manufacture" of any machine and credit cannot be used for paying duty on the final product since C.K.D. package is itself treated as machine and machine as input is excluded under exclusion Clause (i). 25. The purpose of Rule 57A is to grant benefit of Modvat credit to manufacturers using specified goods in and in relation to the manufacture of specified final products. What could be the particular object intended to be achieved by introducing the exceptions in the exclusion Clause (i)? The clause excepts not one but a group of items. If the items were totally dissimilar with no common factor or thread, the items can be given their widest meaning. But almost all the items can be brought under an intelligible classification. The Government must have thought that only "self-contained, complete or whole" machines and not parts thereof are to be excluded. There is no reason why this logically limiting restriction should not be placed on the exclusion Clause (i). The manifest intention becomes amply clear on account of the a....
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....rstanding terms and expressions used in Rules or notifications. Relevance of such aids of interpretation depends upon the context, the clarity or otherwise of the language used in the provision under consideration, the extent to which aids of construction are needed, and whether the aid so available is repugnant in the context and other relevant factors. It cannot be dogmatically asserted that in all cases, such aids of construction are relevant or safe guide. Relevance or otherwise of these Rules and Section and Chapter Notes or any aid of construction depends on the context arising in a given case. 28. An examination of various tariff items and Rule of Interpretation Section Notes and Chapter Notes in Schedule I to the Central Excise Tariff Act reveals that the Parliament, while dealing with various kinds of machines and the like, specifically provided for parts and accessories and the Rules of Interpretation were framed to provide guidance in the matter of locating the actual position of spares and accessories among the various items, where the items do not specifically deal with spares and accessories. The total absence of any such feature in the exclusion Clause (i) in....
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.... an `appliance' and is not excluded by the exclusion Clause (i) of the Explanation to the Rule. (d) Appeal No. E.332/94 is dismissed; Appeal Nos. E./21/88, 739/90, 601/90, 19/91, 1713/94, 1714/94, 1435/95, 2489/94, 1244/89, 1116/95, 49/92, 106/92, 1901/92, 865/93 and 866/93 are allowed and orders impugned in these appeals are set aside. Dated : 4-6-1996 Sd/- (K.S. Venkataramani)  Member (T) Sd/- (Justice U.L. Bhat) President 31. [Contra per : Lajja Ram, Member (T)]. - With due respects, I am not able to persuade myself to agree with the order proposed. I record my order as under - 32. The main issue for consideration in this group of appeals is, whether the parts of the paper making machinery are eligible for Modvat credit under Rule 57A of the Central Excise Rules, 1944 (hereinafter referred to as the `Rules'), when machinery as such is not so eligible. 33. Under Rule 57A of the Rules, credit of any duty of excise or the additional duty under Section 3 of the Customs Tariff Act, 1975 (51 of 1975), as may be specified in the Notification issued under that Rule, paid on the goods used in ....
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.... with any other material) woven from strips or tapes. (Source Central Excise Manual, Vol. 1, 15th Edition as on 1-8-1992, published by the Directorate of Publications, Customs and Central Excise, New Delhi). These exclusions are also subject to change from time to time. 34. In these proceedings, we are concerned with the expressions "machines, machinery, plant, equipment, apparatus, tools or appliances used for producing or processing of any goods or for bringing out any change in any substance in or in relation to the manufacture of the final products." In view of the Explanation and in view of the specific exclusions, these items are not inputs for the purposes of Rule 57A. The issue for consideration is, as to what is the scope of these terms : machines, machinery, plant etc.; whether the constituent parts of these machines, machinery, plant etc. are or are not the `inputs' for the purposes of Rule 57A. 35. These terms, machines, machinery, plant etc. have been mentioned without reference to any Heading or sub-heading of the Central Excise Tariff. From the arrangement in the exclusion clause, it appears that these terms have been used in....
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....ad observed that the word `plant' is to be given a very wide meaning. The thing need not be part of the machine used in the manufacturing process but could be merely an apparatus used in carrying on the business but having a degree of durability. It may have a passive or an active role. It was added by the Hon'ble High Court that a piecemeal approach is not permissible and the entire matter must be considered as a single unit unless, of course, the component parts can be treated as separate units having different purposes, and that the functional test is a decisive test. Some extracts from that judgment are given below : A third principle was sought to be brought in by the decision in Hinton v. Maden and Ireland Ltd. [1960] 39 ITR 357 (HL), as a corrollary to the first one in Yarmouth v. France [1887] 19 QBD 647, namely, the principle that the thing need not be part of the machine used but could be merely an apparatus used in carrying on the business but having a "degree of durability". That case, in our view, is, in fact, nearer to the facts of the present case before us in certain respects. There, the taxpayers were shoe manufacturers who, in the course of making shoes, used a....
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....of durability and (at p. 96). "the test would be. Does the article fulfil the function of a plant in the assessee's trading activity? Is it a tool of his trade with which he carries on his business ? If the answer is in the affirmative, it will be a plant," even though the articles had no part in the mechanical operation though, owing to technological advances, they might or would, in course of time, become obsolete, and approved the exhaustive judgment of P.D. Desai J. sitting with Diwan C.J. in CIT v. Elecon Engineering Co. Ltd. [1974] 96 ITR 672 (Guj), a decision which was also directly affirmed by the Supreme Court in 1987 in CIT v. Elecon Engineering Co. [1987] 166 ITR 66. 38. In so far as the machines and machinery are concerned, they are also items of wide import. Six types of simple machines are; the lever, the wheel and axle, the pulley, the inclined plane, the wedge and the screw. By combining the principles of simple machines, new and specialised machines are developed. The earliest decision on the subject is that of the Privy Council in the case of Corporation of Calcutta v. Chairman of the Cossipore and Chitpore Municipality, AIR 1922 Privy Council 27. Th....
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....l decision aforesaid, held that the said contrivance called "cottage basin" is a machinery. In Industrial Machinery Mfgrs. Pvt. Ltd. v. State of Gujarat [1965] 16 STC 380, the Gujarat High Court had to consider whether "humidifiers" used by cotton textile mills installed to maintain a certain humidity for the purpose of increasing the strength of yarn, avoiding breakages of yarn and improving the quality of yarn and which are essential to the modern textile industry, are "machinery" within the meaning of a particular entry in the Bombay Sales Tax Act. It was found that without the humidifiers it was not possible for any textile mill to run according to the modern technique. Again, applying the definition evolved by the Privy Council in the aforesaid case, it was held that "humidifiers" are machinery. The reasoning behind the said conclusion appears from the following observations (at p. 384) : "Manufacture of goods means the process of converting raw materials into finished goods and whatever machinery is required for converting raw materials into finished goods would be machinery used in the manufacture of such goods. Every item of machinery which has a use in the manufactur....
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....tain the necessary consistency of colours. It was noted that the cloth is spread on the tables and with the help of screen print frames by moving hand-rolls, necessary designs are imprinted and there is an instantaneous drying of the printing on the cloth. In other words, the table supplied by the assessee became an integral part of the machinery which was employed in screen printing. In the circumstances, it was held that having regard to the size of the tables, the object for which they were sold and the use to which they were put and more particularly having regard to the fact that the tables had been fitted with steam pipes acting as instantaneous driers, the entire assembly of the table, pipes, screen printing and the rolls was nothing else but a machinery. It was further observed that some solid structure with no moving parts cannot be treated as machinery. 40. The final products - paper and paper boards are manufactured by using a group of machines, machinery and various other items constituting the machines, machinery and the plant. The prospective manufacturer organises purchases of different items of manufacturing apparatus from different sources. The various item....
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....rdrinier machine, also twin-wire machines, cylinder machine (for heavy paper and paper board), water drains off leaving a mat of fibres on the surface of the wire. Suction devices help to drain the water through the wire. When the mat is about 1/5 fibre and 4/5 water, the sheet has enough strength to be removed from the wire. The sheet then passes between large press rolls that squeeze water from the sheet until it is about 1/2 fibre and 1/2 water. Most of the remaining water is removed as the sheet passes over steam heated cylinders. Chemical bonds that hold the finished sheet together form during the drying process. The dried sheet may be smoothened by pressing it between the cylinders of a calendar stack. It is then wound into rolls at the reel. 43. There is no doubt that the goods felt, phosphorous berge, stainless steel wire, cloth mesh, dandy cloth etc. are not used directly in the manufacturing process, but participate in the manufacture of the final products through the machinery of which they are an essential requirements. Independently (without being a constituent of the machinery) they are not usable in relation to the manufacture of the paper. In the case of ....
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.... 666 (Tribunal), the Tribunal had held that Tundish board used for the protection of the refractory bricks as a lining material for the furnace was a part of the furnace and would be taken to have been used in relation to the equipment for the manufacture of steel and for that reason benefit of Modvat credit could not be allowed thereon. In the case of Associated Cement Company Ltd. v. CCE - 1991 (55) E.L.T. 415 (Tribunal), the Tribunal had held that the benefit of Modvat credit could not be extended to goods in the nature of machines, appliances, tools, equipment etc. as also goods used in relation to the apparatus as distinct from the goods used in relation to the manufacture. 44. The issue before the Hon'ble Calcutta High Court in the case of Singh Alloys & Steel Ltd. v. Assistant Collector of Central Excise, - 1993 (66) E.L.T. 594 (Cal.), was entirely different then the issue in these group of appeals. The Calcutta High Court had observed as under : "6. The object of the legislature appears to me to be to exclude from the genus of inputs, the species mentioned in the excluded categories because otherwise a manufacturer would be entitled to claim Modvat in respec....
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.... held that even when there was no specific mention of parts and components of ball and roller bearings, they were not excluded from the purview of the levy. Similarly, in the case of Ballarpur Industries Ltd. v. Collector of Customs, Madras - 1995 (75) E.L.T. 6 (SC), it had been held that the machine part Granite Press Roll fitted with mild steel shell and end-plates and its cavities filled with concrete were a part of the machinery for making or finishing cellulosic pulp paper or paper board and that it was required to be classified with that machine. In the case of Quality Steel Tubes (P) Ltd. v. Collector of Central Excise, U.P. - 1995 (75) E.L.T. 17 (SC), the Hon'ble Supreme Court had held that the plant and machinery embedded to earth was not excisable, although certain items of the plant and machinery were purchased from the market and installed to form part of the tube mill. Various components were purchased from the market and these were assembled and installed at the site to form part of the tube mill. The tube mill in that case was not a specific machine but consisted of several components which after installation got embedded to earth and formed part of the plant. 47.....