ORDER
Jyoti Balasundaram, Member (J)
1. The appellants herein are engaged in the manufacture of Vacuum Pan Sugar and molasses falling under Chapter 17 of the Schedule to the Central Excise Tariff Act, 1985 in their factory at Mawana. From 1-3-1994 they were availing of the benefit of the scheme of Modvat on capital goods, for which purpose they filed necessary declarations under Rule 57T of the Central Excise Rules, 1994 and on which basis they took credit of the duty paid on various capital goods received by them in their factory from time to time and used the same for producing or processing or for bringing about any change in any substance for the manufacture of the final products. On 29-6-1995, a show cause notice was issued to them proposing denial of credit of Rs. 64,80,751/- under Rule 57U on the ground that the various items mentioned in the annexure to the notice did not qualify as capital goods within the meaning ascribed thereto in Explanation 1 to Rule 57Q and in respect of certain items, the show cause notice also proposed to deny credit on the ground that the declaration was not filed or documents on the strength of which credit was taken, were not valid duty paying documents. The Assistant Commissioner of Central Excise, Muzaffarnagar adjudicated the notice vide his order dated 30-8-1996 disallowing Modvat credit of Rs. 62,78,095/-, credit of Rs. 1,18,819/- was extended in respect of Sugar Melter and Body Evaporators, Process Control Equipment and Electric Motors. The Commissioner of Central Excise (Appeals) before whom an appeal was filed, passed order-in-appeal dated 24-12-1996, extending credit of Rs. 58.57 lakhs availed on hydraulic motors for flour mills and parts thereof, but disallowing balance credit of Rs. 4,21,526/- on various other items. Hence this appeal by the assessees.
2. I have heard Shri M.R. Devnath, learned Advocate who contends that all the items in dispute on which credit has been denied are capital goods and several of them are covered by earlier orders of the Tribunal. Learned DR reiterates the findings contained in the adjudication order.
3. The process of manufacture of Vacuum Pan Sugar and molasses in the factory of the appellants, as seen from the write-up furnished after conclusion of the hearing is as follows :
The cane after harvesting is cleaned and delivered at the gate of the sugar mill and weighed through the cane weigh bridge. After delivery of the cane to cane carrier in its feeding length, the cane is carried to the plant for juice extraction process; on the cane carrier itself, revolving knives are fitted to cut and split the cane into finest particles for better milling. The prepared cane goes to the mill for juice extraction and by application of pressure and squeezing device in the mill, the juice is extracted from cane. The remaining residue is called bagasse. The juice extracted from 3 or 4 mills is mixed together and screened for removal of .fine bagasse particles and the mixed juice is weighed and pumped to the boiling house for further processing. Bagasse is sent to boiler house through belt conveyors and is used as fuel. The mixed juice after weighment is pumped to the boiler house where it is heated to 70°C in juice heaters. Clear juice overflows from the top and is pumped to the evaporators. Muddy juice is filtered through rotary vacuum filters. Clear juice is concentrated to 60% solid level and the liquor so obtained is called syrup. The syrup is pumped to syrup sulphitors and is used for crystallisation process. It is continuously boiled and injected nuclei of the sugar is allowed to. grow in the final size of sugar crystal in pans. Sugar after proper development in the pans remains with mother liquor and both together are termed as mascuit which is sent to crystalliser for cooling. Cold mascuit is sent to the centrifugal station for separation of mother liquor from the crystals. In the centrifugal sugar head wash water is supplied for washing sugar layers. The sugar discharged from the centrifugal is conveyed by hoppers through a Floudised Bed Drier for drying the sugar which is then cooled and graded in different sizes and filled in the bags through rubber belt conveyors which are then stitched and numbered and then transported to godowns through belt conveyors. The entire plant requires precise control at every stage.
4. Let me now discuss the various items on which credit has been denied:
4.1 Measuring and Checking instruments, Process Control Equipment Magnetic Flow Meter, Measuring and Checking Meter, External Gauge Level Switch:
These are process control instruments essential for controlling various control parameters at different points in the sugar plant, without which the manufacture of sugar is not possible because any small variation in the various parameters governing the manufacturing process would vitally affect such a process. Therefore, they are essential for the purpose of manufacture of final products in a marketable condition. The reason for denial of credit on these items is that they are not directly used in or in relation to the manufacture of the final products. However, since they are essential for the purpose of manufacture of the final products in a marketable condition, they are to be held as falling within Clause (a) of the Explanation 1 to Rule 57Q and entitled to credit thereunder. In fact, the Assistant Collector himself in para 13 of his order has extended credit to process control equipment and, applying the same analogy/ measuring and checking instruments would also be covered by the definition of capital goods, as held by the Tribunal in several cases, including the order in the case of Geep Industrial Syndicate Ltd. v. CCE, Allahabad reported in 1996 (88) E.L.T. 753, wherein benefit of credit was extended on items such as electrically heated muffle furnace used for testing quality of raw material/and ampere meter, volt meter and vacuum pump for measuring and testing finished product, as the process of measuring and testing of inputs as well as outputs was an essential process in completion and manufacture of dry cell battery.
4.2 C.I. Pulley : This is installed as part of the prepared cane fitting to the belt conveyor which ultimately fits to the first mill for extraction of prime juice i.e. it is part of the conveyor belt system used for carrying the sugar cane. This item is in the nature of material handling equipment and, therefore, are covered by the definition of capital goods, applying the ratio of the Tribunal’s order in the cases of Mann Structural* v. CCE, Jaipur reported in 1997 (93) E.L.T. 457 which in turn follows the Tribunal’s order in the case of MM Forgings Ltd. [1997 (89) E.L.T. 617 (Tribunal)] and Novo Udyog Ltd. [1996 (88) E.L.T. 532]. For the same reason, conveyor belts are also held to be capital goods within the meaning of Rule 57Q.
4.3 Safety valves : This is a component part/accessory of the boilers installed in the factory. Since boilers are used for producing or processing of goods and would be covered by Clause (a) of the explanation 1 to Rule 57Q, safety valves are covered under Clause (b) of the explanation.
4.4 Pipe Fittings and Flanges : These are used to carry the sugar cane juice/syrup to various vessels for processing of sugar. These pipe fittings are in the nature of material handling equipment which have been held to be capital goods under Rule 57Q. Therefore, credit is available on these items.
Pump with Wire Frames : Pumps with Wire Frames which are instrumental in moving sugar cane juice mascuits and molasses from one station to another in the plant for production of sugar are also in the nature of material handling equipment and hence entitled to credit as capital goods. Credit on these two items has been denied for the reason that it was taken against original invoice and not against duplicate invoice. Applying the ratio of the Tribunal’s order in the case of Ganeshwar Sugar Mills Ltd. v. CCE, Meemi reported in 1997 (19) RLT 324, wherein the Tribunal has extended credit on the basis of original copy of invoice, since Rule 57T(3) does not prescribe the copy of the invoice for this purpose, I hold that credit is available on this item.
4.5 Bagasse Baling Press : Bagasse baling press is used for making bales of bagasse which is used as fuel in boilers for steam generation. The steam generated is used in prime movers for generating electricity for overall plant operations including manufacture of sugar. The reason for denial of credit on this item is that it is used exclusively for bagasse which is exempt from payment of duty and, therefore, hit by the bar of Rule 57R(1). However, since the baling press is used in the manufacturing process of the final product i.e. sugar (in addition to being used for baling of bagasse which is an intermediate stage in the sugar manufacturing process), it is a machine used for producing or processing goods and the provisions of Rule 57R(1) are not attracted because such bar would be applicable only if the capital goods are used exclusively for production of a final product which is exempt from the whole of the duty of excise or chargeable to nil rate of duty. Therefore, I hold that this item is also entitled to credit as capital goods.
4.6 Space Heater: Space heater is in the nature of component part/accessory of generator/ACB and since the alternator/ACB is covered by Clause (a) of the explanation 1 to Rule 57Q, space heater would be covered by Clause
(b) thereof.
4.7 Spares for butterfly valve: Credit is not available on this item since it has not been declared and the declaration dated 20-6-1994 only shows gate valves which has not been established to be identical to butterfly valve.
4.8 Thermic Bearing Metal : This is required for babbitting of Mills Bearings which are integral parts of mill crushers. Credit has been denied on the ground that this is in the nature of welding equipment. The appellants do not dispute this finding but contend that since the item is in the nature of a component part/accessory, credit should be extended thereto. Since the finding of the lower authorities that this item is in the nature of welding equipment remains uncontroverted, I hold that credit has been rightly denied on this item.
4.9 Reduction Gear Box: The reason for denial of credit on this item is that credit was taken against a proforma invoice. In the absence of any other dispute such as the proforma invoice not containing all the details as required in terms of Notification 15/94-C.E., and applying the ratio of the Tribunal’s order in the case of Ganeshwar Sugar Mills reported in 1997 (19) RLT 324,1 hold that credit is available on this item.
4.10 Aluminium Device Tank: Credit has been denied on this item for the reason that it was purchased through contractor without permission from the competent authority under Rule 57T(3). However, since the invoice issued by the seller viz. M/s. Isgec Company shows the appellant as the consignee and since this item was declared, credit is to be extended to this item as any minor procedural irregularity cannot deprive an assessee of the substantial benefit of Modvat credit.
4.11 Rotating Machinery: Rotating machinery is not entitled to credit as admittedly it was not covered by the declaration during the relevant period (January 1995) and was declared for the first time only in the declaration of 30-5-1995.
4.12 Water Automat: This is used to wash sugar for removing molasses layer with the help of hot water and to control the temperature of heated wash water. Since washing of sugar is a process necessary for the manufacture of the final product viz. sugar applying the ratio of the judgment of the Supreme Court in the case of Collector of Central Excise v. Rajasthan State Chemical Works reported in 1991 (55) E.L.T. 444 (S.C.), this item is eligible for credit under Rule 57Q as it stood even prior to its amendment on 6-3-1995 by which water automat and certain other items were specifically included as capital goods.
5. In the result, I hold that credit is available on all the disputed items except spares for butterfly valves, thermic bearing metal and rotating machinery.
6. The appeal is disposed of as above.