COMMISSIONER OF CENTRAL EXCISE, COIMBATORE AND ORS.versusJAWAHAR MILLS LTD. AND ORS.

A     COMMISSIONER OF CENTRAL EXCISE, COIMBATORE AND ORS.
                                            V.

                         JA WAHAR MILLS LTD. AND ORS.

                                    JULY 27, 2001

B                 [S.P. BHARUCHA AND Y.K. SABHARWAL, JJ.]


           Excise laws :

            Central Excise Rules, 1994-Explanation to Rule 57Q-Capital Goods-
C    Power cables, capacitors, control panels, cables distribution boards, switches,
     starters, air compressors-Held, the said items are Capital Goods under the
     Rule.

            Respondent-manufacturers treated power cables, capacitors, control
D   panels, cables distribution boards, switches, starters, air compressors and other
    like items as Capital goods and claimed Modvat Credit for the duty paid under
    Rule 57Q of the Central Excise Rules, 1944. Revenue disallowed the claim.
    CEGAT allowed the appeal of the respondent-manufacturers.

           In appeal to this Court, Revenue contended that whether an item falls
E   within the definition of 'Capital Goods' would depend upon the user it is put
    to; and that the items could not be treated as 'Capital Goods' as the
    respondents could not establish that the items were used in the manufacture
    of final product.

          Dismissing the appeals, the Court
F
           HELD : 1.1. The definition of 'Capital Goods' in E,xplanation to Rule
    57Q of the Central Excise Rules, 1944 is very wide. The language used in the
    Explanation is very liberal. In view of the liberal language of the provision, if
    any of the items enumerated in Explanation l(a) is used for any purpose
    mentioned therein for the manufacture of final product, it would satisfy the
G   test of'Capital Goods'. It was not the case of the Revenue at any stage before
    the authorities that an item does not satisfy the requirement of 'Capital Goods'
    within the meaning of the Rule on the ground of its user. The case of the
    Revenue has all through been that the items in question per se are not 'Capital
    Goods' within the meaning of the expression as defined in Explanation l(a).
H   On facts and circumstances of these cases, the items in question are not used
                                          58
              COMMR. OF CENTRAL EXCISE v. JAWAHAR MILLS LTD.               59
for manufacture of final product cannot be accepted. [62-8; 64-A-CJ              A
     Indian Farmers Fertilisers Cooperative Ltd v. Collector ofCentral Excise,
Ahmedabad, [1996) 5 SCC 488, relied on.

     CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 619-626
of 2000.                                                                         B
     From the Judgment and Order dated 13.4.99 of the Customs Excise and
Gold Control Appellate Tribunal, Delhi in Misc. 0. Nos. M/60-67 of 1999-
NB (DB) in E/A Nos. I2I7/96-NB, 498/97-NB, 583, 584, 585/97-NB, 1835/
97-NB, 193/98-NB and 302/98-NB.
                                                                                 c
                                    WITH

      C.A. Nos. 590-591, 599, 420, 627, 653, 654, 674, 897-898, 899-900,
901, 819, 818, 799, 806, 816, 817, 874, 873, 872, 842, 1082, 1085, 1114,
 1117, 1118, 1463, 1464 of 2000 S.L.P. (C) No.2954/2000, C.A. Nos.1896,
 1895, 1812, 1785, 1784, 1532, 1962, 1963, 1964, 2000-2001, 2051, 2156,          D
2157, 2210, 2220 of2000, S.L.P. (C) No.5450/2000, C.A. Nos.2197, 2196,
2132,2131,2308,2303-04,2306-2307,2342,2309,2385,2386,2407-2409,
2419, 2418, 2417, 2410, 2420, 2553, 2539-2544, 2545, 2538, 2554, 2552,
2537, 2606, 2607, 2387, 2626-2628, 2669-2670, 2671, 2674, 2668, 2667,
2666, 2673, 2707, 2750, 2744, 2749, 2582, 2890, 2748, 2891-2894, 2899,           E
2907-2921, 2906, 2905, 2902-2904, 2978, 3001-3004, 3063, 3074, 3075,
3062, 3560, 2929, 3292, 3276-3282, 2275 3168-3169, 3522-3529, 3439-
3440, 3537, 3540, 3547, 3543-3544, 3588, 3630, 3637, 3633, 3636, 3629,
3551, 3707-3708, 3701-3702, 3713-3718, 3720-3725, 3828, 4290 of 2000,
S.L.P. (C) No.11676/2000, C.A. Nos.4208, 4254-4260, 4289, 4559, 4616,
4513-4514, 4486, 4511, 4821, 4742, 4779, 4766, 4943, 5315, 5555, 5659,           F
5522, 5832, 5155-5162, 5971-5973, 5633-5634, 5978, 6077, 2944, 6459,
6581, 6578-6579, 6871, 7164 of2000, C.A. Nos. 304, 285-289, 748 of2001,
S.L.P. {C) No.190112001, C.A. Nos.1261, 1495-1497, 2997-2998 of 2001,
3427-3428 of 2000, 3855 of 2001 and CA No.02801/2000.

      Soli J. Sorabjee, Attorney General, Harish N. Salve, Solicitor General,
                                                                                 G
R.N. Trivedi, Mukul Rohtagi, Additional Solicitor Generals, Sudhir Chandra,
Ranjit Kumar, Joseph Vellapally, N.K. Bajpai, K. Swami, Ms. Nisha Bagchi,
Ms. Smitha Inna, K.C. Kaushik, R.N. Poddar, Rajiv Nanda, B.K. Prasad,
Rana Mukherjee, Ms. Sumita Mukherjee, P.K. Ganguly, V. Lakshmikumaran,
M.P. Devanath, B.L. Narasimhan, V. Balachandran, Rajesh Kumar, Balbir            H
    60                        SUPREME COURT REPORTS [2001] SUPP. I S.C.R.

A Singh, Dayan Krishnan, Nikhil Nayyar, Trideep Pais, Ms. Meenakshi Arora,
     H.K. Puri, S.K. Puri, Rajesh Srivastava, UJJwal Banerjee, Ms. Anindita Gupta,
     Vijay K. Jain, M.P. Shorawala, M.P. Vinod, U.A. Rana, Ms. Shalini Mittal,
    Arvind Kumar, Ashok K. Mahajan, K.V. Viswanthan, Atul Kumar Sinha,
    K.V. Venkataraman, Ms. Indu Malhotra, Ms. Binu Tamta, Varun Goswami,
B   Ravinder Narain, Vikram Singh, P.C. Jain, Sandeep Jain, Ms. Shipra Ghose,
    Rupesh Kumar, Tara Chandra Sharma, Rajeev Sharma, Ajay Sharma, Vinay
    Garg, Deepam Garg, Gaurav Jain, Ms. Abha Jain, A.C. Jain, B. Mohan,
    Rakesh K. Sharma, M. Venkatraman, Subramonium Prasad, Rajendra Singhvi,
    Ashok Kumar Singh, Ms. Rohina Nath, Umesh Kumar Kbaitan, Tarun Gulati,
    V.G. Pragasam, Manmeet Singh Jamwal, Puneet Dutt Tyagi, Ms. Suruchii
C   Aggarwal, Ms. N. Agnnapoorani, Pramod B. Agarwala, Ravindra Kumar,
    Ms. Manjula Gupta, S. Nanda Kumar, V. Vijayan, L.K. Pandey, V.J. Francis,
    K.V. Viswanathan, Ms. Gauri Rasgotra, Suman Jyoti Khaitan, K.K. Mohan,
    Rajesh, E.C. Agrawala, Rishi Agrawal, R. Santhanam, Mahesh Agrawala,
    Praveen Kumar, Shri Narain, Sandeep Narain, Ms. Anjali, Adv. for S. Narain
    and Co. Advs., Y.P. Singh, Chatanya Siddharth, Debasis Misra, Advs. In-
D   person in C.A. Nos. 2187-95/2000, In-person in C.A. Nos. 2I47-49/2000 and
    In-person in C.A. No. 3012/2000 for the appearing parties.

          The Judgment of the Court was delivered by

          Y.K. SABHARWAL, J. In this batch of appeals the only point in issue
E is regarding availing of Modvat Credit in respect of certain items by the
    manufacturers treating those items as 'Capital goods' in terms of Rule 57Q
    of the Central Excise Rules, 1944. The controversy was whether those items
    were 'Capital goods' or not within the meaning of Rule 57Q.

          Rule 57Q was introduced by Notification No.4/94-CE dated I March,
F
    1994. It enabled manufacturers to claim Modvat Credit of duty paid on
    'Capital goods' used in their factory. The expression 'Capital goods' has
    been defined in the Explanation to Rule 57Q. For the proper appreciation of
    the controversy between the parties it would be convenient to reproduce Rule
    57Q along with its Explanation. It reads as under:
G
           "57Q. Applicability. - (I) 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 utilizing the credit so
H          allowed towards payment of duty of excise leviable in the final
  COMMR. OF CENTRAL EXCISE v. JAWAHAR MILLS LTD. [Y.K. SABHARWAL, J.] 6]

       products, or as the case may be, on such capital goods, if such capital      A
       goods have been permitted to be cleaned under rule 57, 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 -                                                          B
      (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 Park and used for the               C
           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.                                                               D
     Explanation.- For the purposes of this section, -

      (I)   'capital goods' means-

             (a) machines, machinery, plant, equipment, apparatus, tools or
            appliances used for producing or processing of any goods or for         E
            bringing about any change in any substance for the manufacture
            of final products;

             (b) components, spare parts and accessories of the aforesaid
            machines, machinery, plant, equipment, apparatus, tools or
            appliances used for aforesaid purpose; and                              F
              (c) moulds and dies, generating sets and weigh-bridges used in
            the factory of the manufacturer.

          (I) 'specified duty' means duty of excise or the additional duty
       under section 3 of the Customs Tariff Act, 1975 (51 of 1975).
                                                                                    G
           (2) Notwithstanding anything contained in sub-rule (I), no credit
       of the specified duty paid on capital goods shall be allowed if such
       duty has been paid on such capital goods before the I st day of March,
       1994."

         The Tribunal by the impugned judgment and order dated 13th                 H
      62                        SUPREME COURT REPORTS [2001) SUPP. I S.C.R.

 A April, 1999, considered various items which were involved in different appeals
     and by a common judgment and order decided the controversy in favour of
     the manufacturers rejecting the stand of the revenue that those are not 'Capital
     goods' within the meaning of Explanation (I )(a) defining 'Capital goods'.
     Some of the items considered by the Tribunal are : power cables and capacitors
     in case of Jawahar Mills Ltd.; control panels, cables distribution boards,
.B
     switches and starters and air compressors in the case of Indian Refrigeration
     Co. Ltd.; electric wires and cables in the case of Kothari Sugar and Vijay
     Chemicals. The Tribunal on consideration of the aforesaid provision and
     various decisions including some of this Court one of it being by a Bench of
     which one of us (Bharucha, J.) was a member Indian Farmers Fertilisers
 C   Cooperative Ltd. v. Collector of Central Excise, Ahmedabad, [1996] 5 SCC
     488 came to the conclusion that the items involved qualify as 'Capital goods'
     under Rule 57Q and would thus be eligible for Modvat Credit. The Tribunal
     did not accept the contention of the Revenue that the items were not 'Capital
     goods' within the meaning of term as defined in Explanation (I).

D           The aforesaid definition of 'Capital goods' is very wide. 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, therefore, qualify for availing Modvat
E     Credit. Per clause (b ), the components, spare parts and accessories of the
     goods mentioned in clause (a) used for the purposes enumerated therein
     would also be 'Capital goods' and qualify for Modvat Credit entitlement.
     Clause (c) makes moulds and dies, generating sets and weigh bridges used
     in the factory of the manufacturers as capital goods and thus qualify for
     availing Modvat Credit. The goods enumerated in clause (c) need not be used
F    for producing the fina! product or used in the process of any goods for the
     manufacture of final product or used for bringing about any change in any
     substance for the manufacture of final product and the only requirement is
     that the same should be used in the factory of the manufacturer. Thus, it can
     be seen that the language used in the explanation is very liberal.

G        In the case of Indian Farmers Fertiliser Cooperative ltd (supra) this
  Court interpreted the notification which conferred exemption in respect of
  such raw naphtha as was used in the manufacture of ammonia provided such
  ammonia was used elsewhere in the manufacture of fertilisers. The facts of
  that case were that the appellant was manufacturer of urea - a fertiliser and
H utilized for that purpose raw naphtha. The question therein was whether
   COMMR OF CENTRAL EXCISEv. JAWAHAR MILLS LTD. [Y.K. SABHARWAL, J.] 63

ammonia used in the off-site plants was also ammonia which is "used elsewhere       A
in the manufacture of fertilisers". The off-site plants were held to be part of
the process of the manufacture of urea. Relying upon the phraseology used
in the exemption notification, it was held that there was no good reason why
the exemption should be limited to the raw naphatha used for producing urea
that is .utilized directly in the urea plant since the notification only required   B
that the ammonia should be used in the manufacture of fertilisers and not that
it should be used directly in the manufacture of fertilisers. The Court said
that:

        "The exemption notification must be so construed as to give· due
        weight to the liberal language it uses. The ammonia used in the water       C
        treatment, steam generation and inert gas generation plants, which
        are a necessary part of the process of manufacturing urea, must,
        therefore, be held to be used in the manufacture of ammonia and the
        raw naphtha used for the manufacture thereof is entitled to the duty
        exemption."
                                                                                    D
        The contention of learned Additional Solicitor General that the aforesaid
 decision and other decisions referred by the Tribunal in the impugned order
 were cases involving sales tax and income tax and, therefore, the Tribunal
 should not have relied on those decisions is without any substance because
 the real question is that of the principle laid down by a decision. In view of E
 the liberal language of the provision, Mr. Rohtagi fairly and very rightly did
 not seriously dispute that if any of the items enumerated in explanation l(a)
 is used for any purpose mentioned therein for the manufacture of final products,
 it would satisfy the test of 'Capital goods'. The main contention of Mr.
 Rohtagi, however, is that the question whether an item falls within the
definition of 'Capital goods' would depend upon the user it is put to. The F
 submission is that parts of the items in respect whereof availing of Modvat
credit has been allowed by the Tribunal could not be treated as 'Capital
goods' as the manufacturer could not establish that the entire item was used
in the manufacture of final product. To illustrate his point, Mr. Rohtagi
submitted that part of a cable may go into the machine used by the G
manufacturer and, thus, may qualify the requirement of clause 1(a) and, at
the same time, another part of the cable which is used only for lights and fans
would not so qualify. We have no difficulty in accepting the contention of
the learned Additional Solicitor General that, under these circumstances, user
will determine whether an item qualifies or not the ~equirement of clause
l(a). However, in the present cases this aspect has no relevance. It was not H
    64                        SUPREME COURT REPORTS (2001] SUPP. I S.C.R.

A the case of the revenue at any stage before the authorities that an item does
    not satisfy the requirement of 'Capital goods' within the meaning of the Rule
    on the ground of its user as it now sought to be urged by the learned counsel.
    The case of the revenue has all through been that the items in question per
    se are not 'Capital goods' within the meaning of the expression as defined
    in Explanation I(a). In respect of the cables of which Mr. Rohtagi gave
B   example, the stand of the revenue before the Tribunal was that the cables per
    se cannot be treated as 'Capital goods'. The stand of the revenue was not as
    has been projected now by Mr. Rohtagi. In this view, the question of directing
    remand of these matters for fresh decision by the Tribunal does not arise. On
    the facts and circumstances of these cases, therefore, the stand that the items
C   in question are not used for manufacture of final product cannot be accepted
    for the reasons aforestated.

          We find no substance in the appeals of the revenue. The same are
    accordingly dismissed. The special leave petitions are also disposed of
    accordingly. Parties are left to bear their own costs.
D
    B.S                                                       Appeals dismissed.