TaxTMI 
TaxTMI 
2017 (8) TMI 1001
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....MEG, VCM, PVC and HDPE. The second phase of the complex started in 1995, to commission the Polyester Complex (POY & PSF) and continued in full backward integration with commissioning of the new Polypropylene, Naphtha Cracker, Purified Terephthalic Acid plants and expansion of existing phase 1 plants. During the setup of the Hazira Complex, the petitioners purchased number of capital goods. The petitioners availed modvat credit on such capital goods in terms of Rule 57Q of the Central Excise Rules, 1944 (for short, the Rules). 3 The Appellants have filed requisite declaration under Rule 57T declaring their capital goods and final products. On 26.03.1996, by a show cause notice, the Department proposed to disallow Modvat credit of Rs. 18,58,54,731/and show cause was issued for penalty under Rule 173Q(1)(bb) of the Rules. The Appellants resisted the same. The Assistant Commissioner, by order dated 29.04.1998 denied the Modvat credit of Rs. 7,86,65,435/. The penalty of Rs. 78,67,000/was imposed. Ultimately the net dispute amount recorded as Rs. 4,75,53,606/. 4 The Appellants, therefore, preferred an Appeal before the Commissioner (Appeals). The Commissioner, by order dated 11.11.....
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....s no warrant for limiting the meaning of the expression "in the manufacture of goods" to the process of production of goods only. In the opinion of the Hon'ble Court, the expression "in the manufacture" takes within its compass, all processes which are directly related to the actual production. The Hon'ble Court further held that the items in question fall within the description of goods intended for use as they are directly related to the actual production of goods and without which commercial production would be inexpedient must be regarded as goods intended for use "in the manufacture of goods". The Hon'ble Court has applied and followed the decision of Indian Copper Corporation Ltd. in the said decision. Drawing, designs, photographic material, electrical equipments, etc are necessary to carry out manufacturing process effectively and hence, would be regarded as intended for use in the manufacture of goods. (c) Jawahar Mills Ltd. v. CCE, 1999 (108) ELT 47 (T) Affirmed by Hon'ble Apex Court at 2001 (132) ELT 3 (SC) Wires cables, control panels, etc are necessary to carry out manufacturing business and hence, will qualify as "capital goods". (d) Chowgule & Co. Pvt. L....
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.... of transporting crushed limestone from mines to the factory is eligible for modvat credit as capital goods. Ropeways used for bringing crushed limestones from mines to factory are eligible "Capital Goods". (h) In J.K. Udaipur Udyog Ltd. Vs. CCE - 2002 (147) ELT 996 (T) affirmed by Hon'ble Apex Court at 2005 (183) ELT A159 (SC), the Hon'ble Apex Court has held that ropeway used outside the factory for transferring crushed limestones from the mines to factory is capital goods and entitled to credit. Similar view is also taken in the following decisions: (i) Manikgarh Cement Ltd. Vs. CCE - 2004 (168) ELT 331 (T) Affirmed by Hon'ble Apex Court at 2005 (190) ELT 7 (SC) - Ropeway used outside the factory for transferring drushed limestones from the quarries to factory are entitled to credit as "Capital Goods". (j) Ambuja Cement Eastern Ltd. Vs. CCE - 2015 (321) ELT 497 (T) Affirmed by Hon'ble Apex Court at 2015 (321) ELT A197 (SC) - Items used in mines are eligible capital goods even though not used in the factory. (k) CCE Vs. Vikram Cement - 2004 (177) ELT 320 (T) The issue before the Hon'ble CESTAT was whether the modvat credit of the duty paid on capital goods used ....
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.... credit cannot be denied even though not used in the factory. The relevant portion of the decision is extracted hereunder: "19. In this background, the question arose in the case of Commissioner of Central Excise, Jaipur v. J.K. Udaipur Udyog Limited (supra) whether the explosives used for blasting purposes in the mines and which had not been used in the factory premises for production or in relation to the manufacture of cement could qualify for Cenvat credit. 20. The Court answered the question in the negative and in Paragraph 9 of the judgment as reported said :- "The scheme for Modvat and Cenvat Credits being different and in view of the definition of "input" given in sub-rule (d) of Rule 57AA of the Rules and the omission of a Rule similar to Rule 57J, the ratio of Jaypee Rewa Cement (supra) can have no application here". 21. Three reasons were given by the Court for holding that credit could be taken only on inputs received in the factory of the manufacturer of the final product. First, the Court held that the definition of input given in sub-rule (d) of Rule 57AA was "entirely different from the manner in which the said word had been expounded in the explanati....
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....pital Goods". (p) Jaypee Rewa Cement v. CCE, 2001 (133) ELT 3 (SC) Explosives in the mines are used for the manufacture of final product and hence, entitled for modvat credit even though used outside the factory. (q) J. K. Udaipur Udyog Ltd v. CCE, 2002 (147) ELT 996 (Tri. Del) Affired by supreme Court at 2005 (183) ELT A159 (SC) Ropeway used outside the factory for transferring crushed limestones from the mines to factory are entitled to credit as "Capital Goods". (r) K. C.P. Ltd v. CCE, 2005 (183) ELT 403 (T) Affirmed by High Court at 2015 (330) ELT 66 (AP). Ropeway used outside the factory for transferring crushed limestones from the mines to factory are entitled to credit as "Capital Goods". (s) CCE vs. Pepsico India Holdings Ltd., 2001 (130) ELT 193 (T) - Pipelines used for delivering water from the reservoir to the factory would be treated as used in the factory. (t) Finolex Industries Ltd. v. CCE , 2003(156) ELT 96 (T) - Cranes used for unloading goods from sea at jetty are treated as used in the factory. 7 Respondents resisted the case of the Appellants and filed written submissions. The Supreme Court judgment in Madras Cements Limited vs. Commissioner of ....
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....ines directly to the tanks within the factory. 11 It is an undisputed fact that part of the pipelines and SPM are integrally connected with the equipments and tanks within the factory through the pipelines and instrumentation. It is necessary to run the refinery of the size in question without installation of SPM used in connection with the import of crude by giant crude tankers. SPM and all connected and related items " capital goods" used & usable. 12 The concept and the definition of "capital goods" has been elaborated in many cases and specifically the expression "used in the manufacture" and/or " used in the manufacture of goods". In view of above position of facts and law, we have noted that both the Authorities, including CESTAT have recorded that SPM system is used by the Appellants in pumping raw material through the pipeline directly to the tanks. This mooring system is the part of the Offshore Terminal located offSuvali Coast. This system performs the function of facilitating the berthing of ocean going vessels (carrying fed stock for Cracker Plant) for pumping the raw material through the pipelines directly to the tanks. The anchor piles and chain stoppers hold th....
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....through the pipelines directly to the tanks. The anchor piles and chain stoppers hold the mooring system afloat. There is no issue that the same holds goods in respect of the offshore bends, half shell brackets, anode pipe NPS offshore line pipe, ERW steel pipes. Therefore, the submission that SPN is independent and distinct function of its own, in the facts and circumstances and in view of the law so mentioned about, cannot be stated to be only an extension of machinery situated in the factory. In our view, this part/machinery falls within the ambit of "capital goods" being admitted and integrated part of and falls within the ambit of machinery, equipment, apparatus, tool of appliances, used for producing or processing of any or for bringing about change any substance in the manufacture of the final product. SPM independently cannot bring about in any change in substance for the manufacture of the final product. The crux is, in view of above, that it is integrated and connected part of whole of machinery/plaint/equipment falls within the ambit of "capital goods". 15 This is in the background that the Authorities themselves have given the benefit of other "capital goods" like wi....
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..... The question that arises for consideration is as to in what manner such machines, machinery, plants, equipment, etc., are to be used for the purpose stated therein. 8 A direct answer to this question is given by this Court in 'M/s. J.K. Cotton Spinning and Weaving Mills Co. Ltd. v. Sales Tax Officer, Kanpur and Anr.' : 1965 (1) SCR 900]. In this case, the test which was enunciated by the Court is: "8 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 impossible or commercially inexpedient, goods required in that process would fall within the expression "in the manufacture of goods". "7 .... For goods to answer that description, it is not necessary that they must of necessity be goods which are used as "ingredient or commodity in the creation of goods", or which are "directly and actually needed for turning out or making of the goods." (AIR p. 1312, para 7) 15 The aforesaid process squarely meets the test laid down by this Court in M/s. J.K. Cotton Spinning & Weaving Mills Co. Ltd.'s case. [ AIR 1965 SC 1310: (1965) 1 SCR 900. It is clear that t....