ORDER
Shri Jeet Ram Kait
1. By this appeal the Revenue challenges the order in appeal No. 297, 298/98(MDU) and 684/96 (CBE) passed by the Commissioner (Appeals), Trichy by which he has allowed three appeals filed by the respondent herein.
2. The Revenue has come in appeal against the said order of the Commissioner (Appeals) on the following grounds :
(a) Notification No. 60/94 dated 21.10.94 which allows the Modvat credit of carding machines can be given prospective effect lonely. Hence the capital goods which were purchased prior to 21.10.94 are not eligible for taking Modvat Credit.
(b) Carded/combed cotton emerging out of the impugned capital goods is classified under Chapter heading 52.02 which was not specified under Rule 57Q till 21.10.94.Duty on these capital goods has been paid before 21.10.94 and the assessee is therefore not eligible to take credit under Rule 57Q.
(c) The appellate Authority’s view that credit can be disallowed only at the Rule of 2 1/2% per quarter of use drawing analogy from Rule 57S has no legal backing, as the formula prescribed under the said rule is entirely for a different purpose.
3. I find that similar case had come up for consideration before the Tribunal in the case of CCE, Coimbatore vs. M/s Sambandam Spinning Mills Ltd and six others decided on 27.02.2001 by final order No. 335-341/2001, wherein the Tribunal after hearing both the sides extensively, remanded the case for de novo consideration to the original authority. Since the issue in this appeal is squarely covered by the ratio of the said order, with the consent of both the parties the appeal is taken up for final disposal.
2. I have heard both the sides in the matter. Both the sides adopted the same pleas as was advanced in the case of CCE vs. M/s Sambandam Spinning Mills Ltd and 6 others decided on 27.02.2001 by this Tribunal vide final order No. 335 – 341/2001. Both the sides have no objection for remand of the matter as was done in the case noted above. The relevant portion of the order of the Tribunal (supra) is reproduced below:
4. The Revenue contends in Appeal No.E/1474/96 that in so far as the CCE(A)’s order with regard to spare parts of spinning/winding/doubling machines and carbon tetra chloride is concerned, the same is acceptable. However, the order pertaining to capital goods used in relation to the manufacture of final products being entitled to Modvat Credit in terms of Notification No. 23/94 – CE (NT) dated 20.5.94, the same is contested. CCE(A) had taken the view that proportionate credit is available on preparatory machines/spares parts of preparatory machines that were received prior to 21.10.94 and that synthetic transmission belts are entitled to credit. The Revenue is aggrieved and have filed these appeals contesting the view taken by the CCE(A). It is stated that Notification No. 23/94 dated 20.5.94 weeks to amend Rule 57S and does not intend to enlarge the concept of capital goods so as to include the goods used in relation to the manufacture of final product. The term capital goods is well explained/defined under Rule 57Q only and not under Rule 57-S as held by the CCE(A). The Revenue further contends that the impugned goods i.e. preparatory machines and spare parts and/or synthetic transmission belt and copper bus bar single line do not fall within the purview of capital goods under Rule 57Q during the material time. They state that these materials were included only after the issue of Notification 60.64 CE (NT) dated 21.10.94 and not prior to that date and hence they are not eligible for grant of credit. It is further stated that there is no provision under capital goods rule to grant proportionate credit as held by the CCE(A). With regard to transmission belts, it is stated that this item is used for transfer energy produced by electric motor to the ring frame. They themselves do not produce, process and/or not used for bringing out any change in any substance in the manufacture of final product. They are not spares/accessories to ring frame and hence does not come under the purview of new goods. Likewise similar prayer has been made with regard to copper bus bar single line, part of OHTC. In respect of the other items which are noted in the caused title, the Revenue has made similar grounds with regard to the item ring frame, its spare parts, accessories and carding spares and accessories for which MODVAT Credit was denied under Rule 57Q for the period from 30.6.94 to 21.10.94 on the ground that the same had been taken irregularly by the assessees and hence show cause notices were issued calling upon them the reverse the credit. The AC had confirmed the demands while the CCC(A) had allowed the same which is challenged in these appeals for the reasons set out above.
5. Shri VS Venugopalan, learned Counsel appeared for assessee/respondents M/s Sambandam Spinning Mills while Shri T.Ramesh, Advocate appeared for all other respondents.
6. Shri G.Sreekumar Menon, learned SDR pointed out that Notification No. 60-94 CE (NT) has only prospective effect and it cannot have retrospective effect as all the items were specified under Rule 57 only from the date of Notification. He points out that the issue has already come up before Tribunal on earlier occasions in the case of CCE Coimbatore vs. Singaravelar Spinning Mills (P) Ltd reported in 2000 (115) ELT 112 and for the reasons recorded therein, the Tribunal had remanded the matter for de novo consideration in respect of speed frame which also being post preparatory textile machine for consideration as capital goods. The matter pertaining to carding/combing machine was also remanded on the grounds of marketability of cotton combed/carded prior to 21.10.94. He further pointed out that this matter was also reconsidered in the appeal filed by the department in the case of CCE vs. Thuran Spinning Mills reported in 2000 (117) ELT 699 wherein the Bench bas taken into consideration the previous order of remand for de novo consideration with regard to speed frame i.e. Simplex machine coming into picture invariably only after carding/combing and drawing processes are complete in the manufacture of cotton yarn to be reconsidered in the light of the submissions made by the parties. He also relied upon the judgment in another case in the case of CCE, Madurai vs. Rajarathna Mills Ltd by final order NO. 75/2001 dated 9.1.2001 wherein the matter was remanded for de novo consideration to grant Modvat Credit in respect of speed frame and other items in terms of Rule 7S which are described as preparatory machines and spares meant for the manufacture of carded or combed cotton classifiable under sub heading 5202.00 of the CET. He therefore, submits that the matter may be remanded for reconsideration and as the same is pending adjudication, it is but proper that this matter is also remanded for reconsideration to the original authority to reconsider the Revenue’s plea.
7. Shri T.Ramesh, Advocate contends that the Notification No. 60/94 will have overall effect retrospectively and not from the date of its publication for the reasons given in the order of the adjudicating authority. He contends that the Circular No. 72/94 dated 2.11.94 which itself in para 2 lays down regarding these machines being granted Modvat Credit. In support of this plea he cites the decision in the case of Ballarpur Industries vs. CCE as reported in 2000 (116) ELT 312. The Larger bench comprising of five members considering the pari materia provisions of Rule 57A of CE Rules, in respect of fuel oil used for generation of electricity, after due consideration of the provisions of law held that modvat credit is admissable in respect of fuel oil. He submits that in the face of this judgement, there is no need for remand of this matter and the Revenue appeals may be dismissed.
8. Shri VS Venugopalan, learned Counsel Filed a flow chart of the spinning mills and contends that the pcocess of manufacture of cotton is in a compressed state and before being transformed into yarn goes through a number of process and the flow chart submitted gives the sequence of the machines through which the cotton is passed. It is his contention that function of the carding machine are :
(i) open the cotton completely into the individual fibres constituting the sample
(ii) clean the cotton further by removing dirt, neps and foreign matter and
(iii) arrange the fibres in the form of a round strand of loose soft cotton known as sliver, suitable for presentation at the subsequent process.
He submits that the functions of drawing are (I) to improve the uniformity of the slivers treated and (ii) to straighten the fibres composing the sliver and make them nearly parallel. Like wise he has submitted written submission in respect of Combers, Fly Frames, Ring spinning. It is his submission that in the light of the written submission in the regard to the functioning of individual machine and taking into consideration the findings given by the CCE(A), the plea that preparatory machines are to be treated as capital goods is required to be accepted. He also relied upon the manual of Textile processing by South Indian Mills Association.. He submits that the issue has been gone into by the Tribunal in the case of the Ballarpur Industries case (supra) and in the case of CCE vs. Surya Roshini Ltd reported in 2001 (128) ELT 293 wherein the scope of capital goods has been discussed by the larger bench comprising of five Members. In the face of the clarification and explanation, the matter may be decided in the light of the this judgement. He further that Notification No. 60/94, the Govt. is clarificatory in nature and the Govt. has tried to remove the doubt which was in existence. Therefore, he submits that the principles of mischief rule applies in the present case. He submits that this principle has been applied in the case of Marvel Vinlys Lted. Vs. CCE reported in 1997 (90) ELT 361. He also relied upon the earlier decision in the case of JK Synthetics Ltd. vs. CCE reported in 1996 (88) ELT 785.
9. In counter, the learned SDR submitted that the Notification does not have retrospective effect. The decisions cited by the counsel in the case of Marvel Vinlys Ltd and JK Synthetics did not deal with Notification No. 60/94. With regard to the Larger Bench decision, he relied upon the ruling in the case of Jawahar Mills Ltd vs. CCE reported in 1999 (108) ELT 47 and submitted that this decision did not dealt with the question raised in these appeals and hence they are distinguishable.
10. On consideration of the submissions made by the learned SDR that the matter pertaining to speed frame and preparatory machines have been remanded for reconsideration as in the case of Singaravelar case (supra) and Thuran Spinning Mills (supra), therefore, the plea of the learned SDR for remand of this matter is required to be accepted. The learned Counsels have made a forceful argument that Notification No. 60/94 is a clarificatory one and the issue has to be determined in the light of the written submission made in the cross appeals and the larger bench decision cited by them. These points have to be considered by the lower authority while determining the case in the de novo consideration. Therefore, we set aside the impugned order and remand the matter in all the above appeals for de novo consideration in the light of the ratio of the larger bench decision in the case of Ballarpur Industries vs. CCE (supra) and the earlier judgement cited by the SDR. The written submissions filed by the respondents is also required to be considered buy the original authority in the de novo proceedings after granting opportunity of hearing to the parties. Thus the impugned order is set aside and the matter remanded for de novo consideration. The appeals and cross objections are allowed by remand to the original authority.
4. In the view of the matter following the ratio of the order cited supra, the impugned order is set aside and the matter remanded to the Original authority for de novo consideration in accordance with law.
(Dictated and pronounced in open Court)