ORDER
S.L. Peeran, Member (J)
1. This appeal arises from Order-in-Appeal No. 58/03 CE dated 12.5.2003 passed by Commissioner (A) confirming the Order-in-Original passed by the Asst. Commissioner, Warangal Division confirming demands in terms of show cause notice dated 4.1.1994 and 24.1.1994.
2. The issue involved in the appeal is as to whether the appellants who are 100% EOU are entitled for the benefit of the exemption Notifications No. 123/81 CE dated 2.6.1981, 37/2000-CE dated 8.5.2000 and 58/2000-Cus dated 8.5.2000. The latter two notifications grant benefit to the capital goods used in a quarry. The appellants had procured capital goods without payment of duty under the Notification No. 123/81 CE dated 2.6.1981. The benefit has been denied on the ground that they have used the capital goods in the mining area which was not within the bonded area in terms of the Customs Notification. The contention of the appellant is that the capital goods were used for the purpose of excavating raw granites, the same were utilized for the manufacturing activity. The goods manufactured were exported by them and as a consequence, the benefit cannot be denied solely because the capital goods were put to use in the mining area. It is their contention that the machinery and the items mentioned in their obligations were put to use in their premises either at the factory or at the mines only in connection with manufacturing activity and in accordance with the terms and conditions of the exemption granted. The excavation of granite blocks handling and loading the blocks, blasting materials could not but be put to use only in quarries and therefore, the company could not be faulted for not using such machinery and equipment only in the factory, when the quarrying is an integral part of the manufacturing process of the company. They further submitted that the items/machinery were required only for the purpose of fulfilling the export obligations, as such the view taken by the Revenue that the imported machinery should be utilized only in the bonded premises is not correct. And as consequence, the denial of the benefit of the notification is not justified.
3. It is contended in the written submission that in terms of condition (b) of the Notification No. 123/91-CE dated 2.6.1981 based on the permission given by the Asst. Collector of Central Excise, Warangal Division, Hanamkonda vide letter dated 25.3.1991, the appellants procured indigenous capital goods and consumables duty free and received them into the factory and properly accounted the same in their records. After due accountable of the receipt, the impugned capital goods/consumables intended for use in the quarries/mines were sent to the mining area (quarries) for being used in the manufacture of the export goods. It is further submitted that in the present case they were under the bonafide belief that the equipments intended for the use in the quarry could be taken out of the factory for use in the quarries.
4. It is also submitted that the mining area can be considered as a place of manufacturing operation, for which they relied on the Supreme Court judgment rendered in the cases of Indian Copper Corp. v. CCE reported in 1962 (16) STC 259 and Chowgule & Co. Pvt. Ltd. v. UOI . It was further submitted that the Tribunal in the case of CCE v. Kudremukh Iron Ore Ltd. reported in 1988 (36) ELT 626 (T) has held that High Speed Oil used for running special purpose dumper for carrying crude or from ore body to the crusher is eligible for exemption from duty as consumable brought in connection with manufacture of articles into 100% EOU under Notification No. 123/81 CE dated 2.6.1981 as amended by Notification No. 152/85-CE dated 1.7.1985. This is also affirmed by the Hon’ble Supreme Court as . They also relied on the Tribunal’s judgment rendered in the case of Kudremukh Iron Ore Co. Ltd. v. CCE wherein it has been held that water sprinklers used by the appellants to suppress the generation of dust in extraction of iron ore by blasting is eligible for benefit of exemption under Notification No. 123/81 CE dated 2.6.1981. The appellants have also raised the plea of time bar. It is submitted that the appellants procured the impugned goods directly into the factory i.e., bonded premises and thereafter they were to the mining site for use in excavating the granite blocks. It is further submitted that assuming without admitting the contention of the Department that the impugned goods procured by the appellants are not entitled to the benefit of exemption under Notification No. 123/81-CE dated 2.6.1981, then the bond executed by the appellants in terms of the said Notification for procurement of the impugned goods is also be void ab initio. Therefore, the demand of duty under the impugned order, which is beyond a period of six months (as existed during the material period) is clearly time barred. Further in this case as there is no element of suppression or mis-statement on the part of the appellants, the extended period of limitation cannot be invoked.
5. The learned SDR after careful consideration of the written submissions filed by the appellants and the judgments on the identical point fairly submitted that in view of the latest judgment of the larger bench of the Apex Court rendered in the case of Vikram Cement v. CCE, Indore reported in 2006-TIOL-04-SC-CX-LB holding the mining area also to be a part of the factory, there is not much for him to argue. However, he reiterated the Revenue’s contention but without seriously contesting the case.
6. On a careful consideration, it is seen that there is no serious prohibition in terms of the Notification No. 123/81 CE dated 2.6.1981 with regard to the use of capital goods and other goods mentioned therein to be utilized only in the bonded premises. The terms and conditions of the notification in para (b) is as follows:
the goods required by such undertaking for manufacture and packaging of articles are brought directly to the factory of manufacture and are used in the manufacture and packaging of such articles meant solely for export or for supply to a unit situated in another Free Trade Zone, Export Processing Zone or hundred per cent export oriented undertaking for the manufacture of goods solely meant for export.
7. The capital goods have been sent to the quarry which is owned by the appellants and the granites which are excavated from the mines are utilized for carrying out the necessary manufacturing processes for export in terms of the Notification in question. There is no denial that the excavated granites from the mines have been brought to the factory and has been used in the manufacture of the export items. The only objection raised by the Revenue is that the quarry is not a part of the bonded premises. This view has to be negative for the reason that the capital goods have been used in manufacture of the goods which are required for export of the items in terms of para (b) of the notification. The Apex Court in the case of CCE v. Ginni Filaments Ltd. have examined the issue and have held that in the preamble, which deals with removal of goods from 100% Export Oriented Unit under CT-3 Form, the Apex Court found the use of the words “in connection with the manufacture of” which words are wider when compared to the words in the conditions for exemption viz., “used in the manufacture”. The Apex Court noted that reading the Notification in entirety, therefore, two stipulations have to be fulfilled viz., removal of the ‘goods’ from 100% EOU to the factory of licensee under form CT-3 and in use or participation of said ‘goods’ in the manufacture of products meant for export. The Apex Court ultimately held that once the goods have participated in the manufacture of the products meant for export, then the assessee becomes entitled to the benefit of the notification. This judgment clearly applies to the facts of the case. Furthermore, the larger bench in the case of Kudremukh Iron Ore Ltd. v. CC, Bangalore/Belgaum reported in 2000 (121) EKT 769 have held that the use of machineries in processing the mine ore are vital machinery which play an integral part in the process of manufacture of finished goods, and hence the benefit of Notification No.13/81-Cus. is required to be extended. The Apex Court in the case of Chowgule & Co. Pvt. Ltd. (supra) has also held in the context of mining of ore and processing it for the purpose of sale by blending through mechanical ore, it was held that handling plant constituted one integrated process and the machineries, vehicles, barges, etc., utilized for carrying out ore from mining site to the place of processing were to be considered as goods for use in the processing of ore for sale. In the case of Waterbase Limited v. CCE, Hyderabad-III , the Tribunal has held that the benefit of the Notification No. 123/81CE is required to be extended to the capital goods procured by 100% EOU, when it was utilized to pump sea water into the aquaculture farm for growing shrimps. In this case a similar situation arose where the capital goods had to be taken to pump sea water into the aquaculture farm for growing shrimps and not directly used in the bonded premises. The larger bench of the apex court in the case of M/s. Vikram Cement (supra) has now held that when the capital goods are used in mines for excavation of limestone which are used in the manufacture of cement in the factory is required to be granted the benefit of cenvat credit, as the mining is also required to be considered as part of factory. Further, the reason given is that the excavated limestone is utilized in the manufacture of the final product. In the present case also without the quarrying of granites, the export of the manufactured items cannot be done. The very granites are polished and brought into existence goods, required for export. Therefore, the finding given that the capital goods used in the mining are not eligible for the benefit of the notification is not correct. The capital goods have been used in the manufacture of the final product, which have been exported and hence, the benefit is available. The impugned order is not legal and proper in the light of the cited judgments and hence, the same is set aside by allowing the appeal with consequential relief, if any.
(Operative portion of this Order was pronounced in open court on conclusion of hearing)