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IN THE HIGH COURT OF JUDICATURE FOR RAJASTHAN AT
JODHPUR
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CENTR.EXCISE APPEAL No. 2 of 2006
HINDUSTAN ZINC LTD
V/S
UNION OF INDIA & ORS
Mr. RAMIT MEHTA, for the appellant.
Mr. KULDEEP MATHUR, for the respondents.
Date of Order : 1.7.2008
PRESENT
HON'BLE SHRI N P GUPTA,J.
HON'BLE SHRI KISHAN SWAROOP CHAUDHARI,J.
ORDER
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This appeal, by the assessee, has been filed
against the order of the tribunal dated 26.7.2005,
dismissing the same, by relying upon a larger Bench
judgment of the Tribunal, in Jaypee Rewa Plant Vs. CCE,
reported in 2003 (159) ELT 553, and thereby upholding the
disallowance of modvat/ cenvat credit.
The necessary facts are, that the assessee was
issued a show cause notice, on the ground, that assessee
has availed modvat/cenvat credit on welding electrodes,
during June, 2003 to March, 2004, treating the same as
capital goods, whereas the same appeared not to be covered
under the definition of capital goods.
The assessee contested the notice and contended,
that while electrodes were not used by them for
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fabrication of structure/sheds, rather they are
accessories of machinery for soldering, brazing or
welding, falling under Chapter Heading No.84.68 and since
Chapter Heading No. 84.68 is an item, eligible under Rule
2 b (i) of the Cenvat Credit Rules, 2002, the welding
electrodes acquires eligibility under Rule 2(b)(iii). It
was also contended, that if the credit is not allowed
under capital good scheme, then, the claim of the assessee
may be treated as having been made treating the electrodes
as inputs. It was then contended, that welding electrodes
are necessarily used for maintenance of their plant for
smooth running, as these are mainly used for affixing the
component, namely sheets, plates etc. on the damaged parts
of the machines. As such they are being used as inputs, in
or in relation to, the manufacturer of final products.
Learned Dy. Commissioner confirmed the demand,
by holding, that the welding electrodes do not fall under
any of the heads mentioned in Rule 2. Since goods are used
for repairing/maintenance of the capital goods, are not
eligible for Cenvat credit.
Aggrieved by this order, appeal was filed before
the commissioner, which came to be dismissed, by holding,
that welding electrodes are not eligible capital goods,
and since they have been used for maintenance of plant and
machinery, and have not been used, in or in relation to,
manufacture of finished goods, they do not satisfy the
definition of “inputs”.
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A further appeal filed before the learned
Tribunal was dismissed.
This appeal was admitted on 13.1.2006, by
framing the following substantial question of law:-
“Whether welding electrodes used for repairs and
maintenance of plant and machinery are eligible
for cenvat credit both as capital goods as well
as inputs”.
We have heard learned counsel for the parties
and have gone through the judgment in Jaypee Rewa plant’s
case, as relied upon by the learned counsel for the
department, and have also gone through the judgment of
Hon’ble Supreme Court, in CCE Vs. Jawahar Mills, reported
in 2001 (132) ELT 3, relied upon by the learned counsel
for the appellant.
In judgment of Hon’ble Supreme Court in
Jawahar’s case, it is held, that capital goods can be
machines, machinery, plant equipment, apparatus, tools or
appliances. Any of these goods, if used for producing, or
processing of any goods, or for bringing about any change
in any substance, for the manufacture of final product,
would be ‘capital goods’, and would qualify for Modvat
credit. Then as per clause-b the components, spare parts
and accessories of the goods mentioned above, would also
be capital goods, and would qualify for modvat credit.
Then moulds and dies, generating sets, and weigh etc. has
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also been held to be eligible for modvat credit, even if
they are not used for producing the final product, or used
for process of any product, for the manufacture of final
product, or used for bringing about any change in any
substance, for the manufacture of final product. The only
requirement is, that the same should be used in the
factory of the manufacturer, thus, it was held, that the
language is to be interpreted very liberally. Then the
contention of the Revenue, about the goods involved, being
not satisfying the requirement of capital goods, was
negatived on the ground, that it was not the case of the
Revenue, set up all through.
On the other hand in JP Rewa’s case the
eligibility of credit was denied, which was claimed as
“inputs”. Then so far as the claim made for modvat credit
on the basis of it being capital goods, it was denied only
on the ground, that in the declaration, it was not so
claimed, and the assessee has not even furnished details
of any capital goods for captive consumption, to enable
the adjudicating authority to ascertain, whether such
goods were covered by definition of capital goods. Thus,
for want of evidence to show, that any part of any
electrodes, and gases, was used in the manufacture of any
capital goods for captive consumption, the claim was
negated.
In our view, the judgment of Hon’ble Supreme
Court, in JK Cottons SPG. & WVG Mills Co. Ltd Vs. Sales
Tax Officer, Kanpur, reported in 1997 (91) ELT 34, has a
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material bearing on the controversy involved in the
present case. It may be noticed, that the tribunal in
J.P. Rewa case has referred to this judgment of Hon’ble
Supreme Court in JK Cotton’s case, by reproducing a part
of the head note, but then, the very significant
continuing next sentence has been omitted from
consideration, in as much as the sentence following the
portion quoted by the tribunal, is as under:
“They need not be ingredients or commodities
used in the processes, nor must they be directly
and actually needed for “turning out or the
creation of goods”
In that case the Hon’ble Supreme Court even went
to the extent of holding, that use of electrical
equipments, like lighting, electrical humidifiers, exhaust
fan etc. were also taken to be necessary equipment, to
effectively carry on the manufacturing process. Thus,
with the above, if the quoted part of the judgment in JK
Cotton’s case is read, it becomes clear, that the
expression “in the manufacture of goods” should normally
encompass entire process carried on by the dealer, of
converting raw materials into finished goods, where any
particular process, or activity, is so integrally
connected with the ultimate production of the goods, but
for that process, manufacturing, or processing of the
goods would be commercially inexpedient, goods required in
that process would, fall within expression ” in the
manufacturing of goods”.
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In our view the proposition propounded above
sets the controversy at rest. The question, as framed, is
accordingly required to be answered in favour of the
assessee.
We are not inclined to accept the logic and
reason given in the JP Rewa plant mills’s case, and
following the letter and spirit of the JK Cotton’s case
coupled with Jawaharmal’s case, set aside the order of the
authorities below.
In view of the above discussion, the question so
framed, is answered in favour of the assessee and against
the revenue. Resultantly the appeal is allowed. Impugned
order is set aside. The appellant is held to be entitled
to the credit as availed. The notice issued by the Dy.
Commissioner accordingly stands quashed, and the
proceedings dropped.
( KISHAN SWAROOP CHAUDHARI ),J. ( N P GUPTA ),J.
/ns/