ORDER
K.C. Mamgain, Member (T)
1. In these two appeals, the appellants have challenged the order of the Commissioner (Appeals) denying them the Modvat credit on Refrigeration Compressor. Zero Grade Nitrogen Gas & Calibration Gas and Chlorofloro Carbon Refrigerant gas.
2. The appellants are engaged in manufacture of Compressed Oxygen, Liquid Oxygen and Nitrogen Gas falling under Chapter 28 of Central Excise Tariff.
In Appeal No. E/406/04, the appellants had taken Modvat credit of Rs. 45,418/- on Zero Grade Nitrogen Gas, Calibration Gas armour cellular/sheet and on Kirloskar Pneumatic Refrigeration Compressor HCG falling under sub-heading 8414.30. Show cause notice was issued to the appellants for denial of the credit. On adjudication, Dy. Commissioner denied the entire credit to the appellants. On appeal before Commissioner (Appeals), the order of original authority was upheld.
In Appeal No. E/406/04, the appellants have taken MODVAT Credit of Rs. 68,919/- on Chlorofloro Carbon Refrigerant Gas falling Under sub-heading 2903.10 during the period October, 1997 to March, 1998. Show cause notice was issued to the appellants for denying the credit. Show cause notices were adjudicated by the Asstt. Commissioner, who disallowed the credit of Rs. 68,919/- and imposed a penalty of Rs. 10,000/- on the appellants. The appellants filed appeal against the order before the Commissioner (Appeals) and the Commissioner (Appeals) upheld the order of the adjudicating authority.
3. It is pleaded that that the denial of Credit on the Compressor is contrary to the provisions of Rule as at the relevant time, compressor of a kind used in refrigeration and air-conditioning appliances and machinery falling under sub-heading No. 84.14 were only excluded and other compressors were eligible for Modvat credit. They were using the compressors in the air chilling plant. They were not using it in a refrigerating and air-conditioning appliances and machinery. Their Air Separation Unit was falling under Heading 84.19 of the Schedule to the Central Excise Act. Since mis item is not excluded from the definition of capital goods, they were eligible for Modvat credit on compressor. The Compressor was being used by them as a spare part in the air chilling plant and irrespective of Heading where it falls, it was eligible for Modvat credit under Clause (d) of the definition of capital goods as given under Explanation below Rule 57Q(1) at the relevant time.
4. Regarding Zero Grade Nitrogen Gas and Calibration Gas, it was pleaded that these gases are used in the analyser for calibration. Before the lower authorities, it was pleaded that these are used for keeping calibration in order but the position was not specifically explained that these are used for the purpose of calibration.
5. For denial of credit on CFCR gas, it was pleaded that this gas was treated as part of compressor by lower authority. According to them. CFC gas is not part of compressor but it is used in the system for exchanging heat. Therefore, it should be eligible for credit as it is not in any excluded category.
5.1 On behalf of Revenue, it was pleaded that under the definition of capital goods, compressor of a kind used in refrigeration and air-conditioning appliances or machinery are excluded. The compressor used by the appellants is falling under sub-heading No. 8414.30 as it is a Kirloskar Pneumatic Compressor HCG and since this particular sub-heading is excluded, this compressor is also excluded from the benefit of Modvat credit. It was also pointed out that the Modvat credit was not allowed on compressors. Reliance was placed on the following decisions:
1. Flex India. Ltd. v. CCE
2. CCE v. Multimelt Steels P. Ltd.
3. Rathi Ispat Ltd. v. CCE 2000 (40) RLT 721
4. Nehru Steels 2000 (40) RLT 850.
5.2 Regarding Zero Grade Nitrogen Gas and Calibration Gas, it was pleaded by the appellants before the lower authority that these were used to keep the analyser in proper condition. It was stated that to keep analyser in proper condition only shows that the gases were used for maintenance of the analyser. Therefore, these cannot be held to be eligible for Modvat credit.
5.3 Regarding CFC gases, the stand taken by the appellants before the lower authority was that it is a part of the compressor and since the credit is to be denied on the compressor, credit has also be denied on these gases.
6. I have considered the submissions made by both the sides, I find that on Refrigeration compressor., the arguments of the Revenue is that the compressor is of a kind that is used in refrigeration and air-conditioning appliances and machinery. The appellants claimed that compressors that are used in refrigeration and air-conditioning machinery are excluded from the definition of capital goods under S.No. 1(aa) below explanation to Rule 57Q.
However, the compressor used by them is covered by Clause (1)(d) as component, spares and accessories of the goods specified against S.No. 1(a) to 1(c). The Chilling Plant for separation of the gases used by them falls under Heading No. 84.19 and it is covered by S.No. 1(aa) under Explanation to Rule 57Q. Compressor is used by them as a part of Chilling Plant and it is not excluded from the definition of capital goods irrespective of its classification. It is eligible for Modvat credit under S.No. 1(d) of the definition of capital goods. The definition of capital goods as given under explanation below to Rule 57Q (1) is as under:
RULE 57Q. Applicability. — (1) The provisions of this section shall apply to finished excisable goods of the description specified in the Annexure below (hereinafter referred to as the “final products”) for the purpose of allowing credit of specified duty paid on the capital goods used by the manufacturer in his factory and for utilising the credit so allowed towards payment of duty of excise leviable on the final products, or as the case may be, on such capital goods, if such capital goods have been permitted to be cleared under Rule 57S, subject to the provisions of this section and the conditions and restrictions as the Central Government may specify in this behalf:
Provided that credit of specified duty in respect of any capital goods produced or manufactured –
(a) in a free trade zone and used for the manufacture of final products in any other place in India; or
(b) by a hundred per cent export-oriented Undertaking or by a unit in an Electronic Hardware Technology Park1 [or by a unit in Software Technology Parks] and used for the manufacture of final products in any place in India,
shall be restricted to the extent of duty which is equal to the additional duty leviable on like goods under Section 3 of the Customs Tariff Act, 1975 (51 of 1975) equivalent to the duty of excise paid on such capital goods.
2[Explanation. – For the purpose of this section, –
(1) ‘capital goods’ means, following goods falling within the Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) and used in the factory of the manufacturer, namely :
3[(a) all goods falling under heading Nos. 82.02 to 82.11;
(aa) all goods falling under Chapter 84 (other than Internal Combustion engines falling under heading No. 84.07 or 84.08 and of a kind used in motor vehicles, Compressors falling under heading No. 84.14 and of a kind used in refrigerating and airconditioning appliances and machinery, heading or sub-heading Nos. 84.15, 84,18, 8422.10, 84.24, 84.29 to 84.37, 84.40, 84.50, 84.52, 84.69 to 84.73, 84.76, 84.78, expansion valves and solenoid valves falling under sub-heading No. 8481.10 of a kind used for refrigerating and airconditioning appliances and machinery);]
(b) all goods falling under Chapter 85 (other than those falling under heading Nos. 85.09 to 85.13, 85.16 to 85.31, 85.39 and 85.40);
(c) all goods falling under heading No. 90.11 to 90.13, 90.16, 90.17, 90.22 (other than for medical vise), 90.24 to 90.31 and 90.32 (other than of a kind used for refrigeration and air-conditioning appliances, and machinery);
(d) components, spares, and accessories of the goods specified against items (a) to (c) above;
(e) moulds and dies;
(f) refractories and refractory materials;
7. From S.No. 1(d) of definition of capital goods, the claim of the appellants appears to be correct as components, spares and accessories of the machinery falling under S.No. 1(a), 1(b) and 1(c) are eligible for MODVAT Credit irrespective of classification. However, it is required to be verified that the Compressor in dispute is a spare part of Chilling Plant falling under heading No. 84.19.
Regarding Zero Grade Nitrogen Gas and Caliberation Gas, it is claimed that it is used for analysis of the gases and is not used for maintenance and repair. The position could not be correctly explained to the lower authorities. The fact that these gases are used for the purposes of calibration also requires verification. Regarding CFC Refrigeration gas, it was pleaded that this is used in the system for transfer of heat and it is not used as a component of compressor, therefore, these are eligible Modvat credit. This also requires verification
8. From the above it is clear that use of capital goods under dispute requires verification of actual use. Therefore, I set aside the order of the Commissioner (Appeals) and remand the case to the adjudicating authority to re-adjudicate the matter considering the actual use of capital goods and their eligibility for Modvat credit on the lines mentioned above. The appeals are allowed by way of remand for the above said disputed items.
Order dictated & pronounced in open Court on 13.12.2005.
1[(g) tubes and pipes and fittings thereof, used in the factory;]
2 [(h) pollution control equipment; and]
3 [(i) grinding wheels and the like goods falling under sub-heading No. 6801.10.]