Holding

The Tribunal was correct; the steel plates and M.S. channels used in the chimney fabrication are capital goods and the assessee is entitled to MODVAT credit.

Summary

The appellant, Commissioner of Central Excise, challenged the Tribunal’s order that allowed Mis. Rajasthan Spinning and Weaving Mills Ltd. to claim MODVAT credit on steel plates and M.S. channels used to fabricate a chimney for a diesel generating set. The issue was whether these items qualified as "capital goods" under Rule 57Q of the Central Excise Rules, 1944, falling within serial No.5 of the Table in Rule 570. The Court examined the definition of capital goods and applied the "user test", concluding that the steel plates and channels are essential components of the chimney, which is an integral part of the generating set required by pollution control laws. Consequently, the items were held to be capital goods eligible for MODVAT credit. The appeal was dismissed, affirming the Tribunal’s decision.

Issues considered

Do steel plates and M.S. channels used in the fabrication of a chimney for a diesel generating set qualify as "capital goods" under Rule 57Q/Rule 570 for the purpose of claiming MODVAT credit?
Does serial No.5 of the Table in Rule 570 encompass such items?
Is the "user test" applicable to determine the status of these items as capital goods?

Legislation cited

Central Excise Rules, 1944s. Rule 570, s. Rule 57Q
Central Excise Tariff Act, 1985
Notification No.6/97-C.E. (N.T.)

Subjects

MODVAT creditcapital goodsRule 57QRule 570steel platesM.S. channelschimneydiesel generating setuser testpollution control lawsexcise duty

Judgment

[2010] 8 S.C.R. 396

A COMMISSIONER OF CENTRAL EXCISE, JAIPUR
v.
MIS. RAJASTHAN SPINNING AND WEAVING MILLS LTD.
(Civil Appeal No. 3760 of 2003 )
JULY 9, 2010
B
[D.K. JAIN AND C.K. PRASAD, JJ.]

Central Excise Rules, 1944:

c Rule 570 - Steel plates and M. S. Channels used in the
fabrication of chimney for the diesel generating set - Fall
within the purview of serial no.5 of the Table below Rule 570
and thus entitled to modvat credit under the said rule - Central
Excise Tariff Act, 1985 - Chapter 85.
D The question which arose for consideration in the
present appeal was whether the tribunal was justified in
holding that the assessee was entitled to avail Modvat
Credit in respect of steel plates and M.S. channels used
in the fabrication of chimney for the diesel generating set,
E by treating these items as capital goods in terms of Rule
57Q of the Central Excise Rules, 1944.

Dismissing the appeal, the Court

F HELD: The Tribunal was correct in holding that the
assessee was entitled to avail of MODVAT credit in
respect of steel plates and M.S. channels used in the
fabrication of the chimney for the diesel generating set,
Applying the "user test" to the facts in hand, the steel
plates and M.S. Channels, used in the fabrication of the
G chimney would fall within the ambit of "capital goods" as
contemplated in Rule 57Q. It is not the case of the
Revenue that both these items are not required to be
used in the fabrication of the chimney, which is an

H 396
c""6MMNR-.' OF-CENTRAL.: EXCisE; JAiPUR RAJASTHAN, 397 v. 1

SPINNING AND WEAVING MILLS LTD.
I ·~· . . f· 'Ii • '
- <' tt ... '. ~. ~ ·- /A
., .: \ ' ,J ' \ -

integral part of the diesel generating
, tv
set,
' •
particularly.
·' · : ' •·' ''
• .
when
•, ' ' 'I ,, - ~. } ~

the Pollution
.' , · ·
Control
. .,
laws make
r
.it
' :_,
mandatory
.;-. •"'v
thatI· all ~· ,.S _. .•J

plants which emit effluents should be so equipped with
apparatus _which _can reduce· or get rid of the effluent
gases. Therefore, any equipment used for.the said
_:B
purpose was to be treated as an accessory in terms of
serial,No~S of the goods described in cotumn'(2) of the
Table below Rule 57Q, '[Paras ·13;-14)-[402-H;- '403-A-C] '•
.-.'~;- ..'t ~ ~I~ _·, r"' :! ... 1 '.~. j~ :·~L,i jl L ··'}1-~_,,,.,...., !.'f f"I
Commissioner of central Exci$e, Coimbatore af?d-Ors.•.v.
.1 •

Jawahar Mills Ltd. rand Ors.-(2001),6 SCC 274, reli~d~on. :'c
' '

... · (2001)' 6 scc'274' .':: .. retie~ on·.1,,c;_, ·0 "' Pafa 6
0

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, - . CIVIL APPELLAT~' JURISDICTION~: Civil. Appeal No. '--D
3760 of 2003, .. -. _. ":--,. -. e•;·.· y... , _, i•J -,r .. - ' ,.
_, , · ~ r_J -t. - t1. ~(. . .;'.":."..,. .. ·F.: ;:_ b~ ;-'.~ ~- - /;,,r 1 '
1

-_ . From the Judgment .and Order dated 11.06.2002 of the
:¢ustoms, Exci_se an_d Gold .(Control) App~llate ·,Tr_ibu_n_al,
Northern
- . . . . Bench,
" l\lew Delhi --· ..in- "Final
- .Order -- -No. A/740/02-NB/
- . -· - -- -- - -,E
~fy1] · ..... ·r: .. · } ~r-· , . P. ~~·)~· r.r e ."''.~ -::
1 ~· r. 1.r •· \ . ,, ~;,.
\' '"·~~ o.""-.: '· .·• ·_1,.,' ""il: r ,... • 0 C ;.,l ·. ..I .• , ...... , : ,j, · -:.,
_·
... ,.. ~
Hansh Chandra, Anurag·GuJ)ta; Rama Ram, Bmu Tamta,
'" I I • r \· ,~ " "' T , °'t ' \ "•

~ish~_~:sanc~a,ti an9cAni~ ~f~iy~r!or,th~ A,_pp~tl~nt: _ · L ~. n!
1 B.L.• Narsimhan, Alok'Yadav and M.P. Devariath for the
Respondent.·· ·· · - :· h <~~_--,·1 .: •• ·c •. ;-.,. • >·, ,., -F
... i 4
·Jnr· ~·' ~- ~ 1
......· · . , ' .~ • · • .. • {i~ 1 ,.,b' ~,
The Judgment of the Court was d1elivered by
I• . ," ,, ,' ·..,.]....,; : ~· ,, ''.,'i•,·" 1j,(,·,~" T'11~:l~· ., '\ ".1i' ~~

: r D.K, JAIN; J.1. Challenge in this appeal, by special leave,
_is to the order dated 11th June, 2002 passed by the Customs, ~G
Excise and Gold (Control)• App~llate _Tribunal ,(for short :'the
Tribunal"), as it existed then, in Appeal No:E/725/2001-NB(SM).
By the impugned, order,; the Tribunal has. held. that: the
respondent (for short,"the assessee")· is :entitled• to: avail of
MODVAT credit in respect of steel plates and M.S. channels
H
398 SUPREME COURT REPORTS (2010] 8 S.C.R.

A used in the fabrication of chimney for the diesel generating set,
by treating these items as capital goods in terms of Rule 570
of the Central Excise Rules, 1944 (for short "the Rules").

2. Briefly stated, the material facts, giving rise to the
present appeal, are as follows:
8
The assessee is a public limited company engaged in the
manufacture of yarn. They availed MODVAT credit on "capital
goods"" described in the Table given below Rule 570 in respect
of steel plates and M.S. channels used by them for erection of
C chimney for the diesel generating set, falling under Chapter 85
of the Central Excise Tariff Act, 1985 (for short "the Tariff Act").

3. A show cause notice, dated 20th August 1999, was
issued to the assessee, alleging therein that MODVAT credit
o availed of on steel plates and M.S. channels used in the
fabrication of chimney, was inadmissible as the subject items
were not "capital goods", as described in the said Table.
Therefore, MODVAT credit had been wrongly availed of by the
assessee. In reply to the show cause notice, the assessee
E pleaded that the items in question being components of
chimney which in turn was an accessory of the diesel generating
set, falling under heading 85.02, they also qualify the test of
"capital goods" specified against serial No.5 of the Table, and
therefore, MODVAT credit in respect of the said items was
clearly admissible. It was asserted that chimney was a vital part
F of the generating set for discharge of gases arising out of burnt
fuel, mandatory under the Pollution Control laws.

4. The Assistant Commissioner was of the view that since
steel plates and M.S. channels were not used as input in the
G manufacture of final product, these could not be covered under
any of the chapter headings in the Table under Rule 570,
MODVAT credit on the said items was inadmissible. He,
accordingly, disallowed the MODVAT credit amounting to
Rs.1, 16,650/- availed of by the assessee and imposed a
H
COMMNR. OF CENTRAL EXCISE, JAIPUR v. RAJASTHAN 399
SPINNING AND WEAVING MILLS LTD. [D.K. JAIN, J.]

penalty of Rs.2000/-. Being aggrieved, the assessee filed an A
appeal before the Commissioner (Appeals) but without any
success on the question of MODVAT credit. The Commissioner
(Appeals), however, deleted the penalty levied on the assessee.
The assessee took the matter further in appeal to the Tribunal.
The Tribunal has come to the conclusion that since the chimney B
is used as an accessory to the diesel generating set, and steel
plates and M.S. channels were used in the fabrication of
chimney these items also fall within the ambit of serial No.5 of
the said Table and therefore, MODVAT credit on these items
could not be denied. Not being satisfied with the order of the c
Tribunal, the Revenue is before us in this appeal.

5. Mr. Harish Chandra, learned Senior Counsel appearing
for the Revenue submitted that the Tribunal has failed to
appreciate that "capital goods" as described in the Table under
0
Rule 570 would include only those goods which are specified
against serial Nos.1 to 4 of the said Table and, thus, the "capital
goods" in the present context cover only the diesel generating
set and its components, spares and accessories and not steel
plates or M.S. channels, which are independently classifiable
under Chapter Sub-heading 7208.11 and 7216.10 respectively. E
It was argued that both the subject items were not used as input
in manufacture of final product so as to make them eligible for
MODVAT credit in terms of serial No.5 of the said Table.
Learned counsel thus, urged that the order of the Tribunal
deserves to be set aside. F
6. Per contra, Mr. B.L. Narsimhan, learned counsel
appearing on behalf of the assessee supported the decision
of the Tribunal. He submitted that the issue sought to be raised
by the Revenue in this appeal stands concluded in favour of the
assessee by a decision of this Court in Commissioner of G
Central Excise, Coimbatore & Ors. Vs. Jawahar Mills Ltd. &
Ors. 1 , wherein observing that the exemption notification must
be so construed as to give due weight to the liberal language

1. (2001) s sec 274 H
400 SUPREME COURT REPORTS [2010] 8 S.C.R.

A it uses and that any goods that may be used in the factory of
the manufacturer of final product would be "capital goods" and
would be entitled to MODVAT credit. It was, thus, asserted that
the said items used in the fabrication of chimney, which in turn
is an important component of diesel generating set, qualify the
8 test of "capital goods" and would be entitled to MODVAT credit.
7. The short question arising for determination is whether
the assessee was right in availing MODVAT credit in respect
of the afore-stated items by treating them as "capital goods"
in terms of Rule 57Q?
C 8. Rule 57Q was substituted by Notification No.6/97-C.E.
(N.T.) dated 1st March, 1997. It enables the manufacturers of
· specified goods to claim MODVAT credit of duty paid on capital
goods used by them in the factory for manufacture of final
product. The Rule, insofar as it is relevant for this case, reads
D as under:
"RULE 57Q. Applicability.- (1) The provisions of this
section shall apply to goods (hereafter in this section,
referred to as the "final products") described in column (3)
of the Table given below and to the goods (hereafter, in
E this section, referred to as "capital goods"), described in
the corresponding entry in column (2) of the said Table,
used in the factory of the manufacturer of final products.

TABLE
F S.No. Description of capital goods falling Description of
within the Schedule to the Central final products
Excise Tariff Act, 1985 (5 of 1986)
and used in the factory of the
manufacturer
G (1) (2) (3)
1.
2.
3. All goods falling under chapter
H
COMMNR. OF CENTRAL.EXCISE, JAIPUR v. RAJASTHAN 401
SPINNING AND WEAVING MILLS LTD. [D.K. JAIN, J.]
A
85 (other than those falling under
heading Nos. 85.09 to 85.13, 85.
16 to 85.31, 85.39 and 85.40);

4.'. . '
...................... ..
..
r '.Jo

B
5. Components, spares and·
accessories of the goods specified
against S. Nos. 1 _to 4 _abo_ve;"
-~ ,_.
9. The language of Rule 57Q is clear and unambiguous. It . C
applies t~. the final products described in column (3) of the Table
under the Rule as also to other goods, referred to as "capital
goods", described in the corresponding entry in column (2) of
the said1..Table, used in the factory of the manufacturer of final
product. The parties are·ad idem.that diesel generating set falls
under Chapter 85 under Heading No. 85.02, as described at D
serial No.3·ofthe afore-extracted Table. Similarly there is no
dispute that chimney attached with the generating set is
covered by the itemsaescribeC:I in serial No,5.thereot-However,
the controversy centres around the q·uestion whether the steel ·
plates and M.S. channels used in the fabrication of chimney E
would fall within the purview of serial No.5 of the Table below
Rule 570. ' ·" :..

,, 10. Having examined the question in the light of the
language employed in Rule 570 and,the case law on the point, F
we are of the opinion that the appeal is devoid of any merit.

In
11. Jawahar Mills Ltd. (supra), heavily relied upon by the
learned counsel for the assessee, the question which ·came up
for consideration was whether the claim of MODVAT credit by
some manufacturers ln. respect of certain items by treating them G
as capital goods in terms of Rule 57Q was in order. Some of
the items under consideration were power cables, capacitors,
control panels, cable distribution boards, air compressors, etc.
The Court examined the question in the light of the definition
H
402 SUPREME COURT REPORTS [2010] 8 S.C.R.

A of capital goods given in Explanation to Rule 570, which read
as follows:

"capital goods" means-

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

(b) components, spare parts and accessories of the
c aforesaid machines, machinery, plant, equipment,
apparatus, tools or appliances used for aforesaid purpose;
and

(c) moulds and dies, generating sets and weighbridges
used in the factory of the manufacturer."
D
12. Inter a/ia observing that capital goods can be
machines, machinery, plant, equipment, apparatus, tools or
appliances if any of these goods is used for producing or
processing of any goods or for bringing about any change in
E the substance for the manufacture of final product, although this
view was expressed in the light of the afore-noted definition of
"capital goods" in the said Rule, which is not there in Rule 57Q,
as applicable in the instant case, yet the "user test" evolved in
the judgment, which is required to be satisfied to find out
F whether or not particular goods could be said to be capital
goods, would apply on all fours to the facts of the present case.
In fact, in para 6 of the said judgment, the Court noted the stand
of the learned Additional Solicitor General, appearing for the
Revenue, to the effect that the question whether an item falls
G within the purview of "capital goods" would depend upon the
user it is put to.

13. Applying the "user test" on the facts in hand, we have
no hesitation in holding that the steel plates and M.S. Channels,

H
COMMNR. OF CENTRAL EXCISE, JAIPUR v. R~JASTHAN 403
SPINNING AND WEAVING MILLS LTD. [D.K. JAIN, J.]
used in the fabrication of chimney would fall within the ambit of A
"capital goods" as contemplated in Rule 570. It is not the case
of the Revenue that both these items are not required to be
used in the fabrication of chimney, which is an integral part of
the diesel generating set, particularly when the Pollution Control
laws make it mandatory that all plants which emit effluents B
should be so equipped with apparatus which can reduce or get
rid of the effluent gases. Therefore, any equipment used for the
said purpose has to be treated as an accessory in terms of
serial No.5 of the goods described in column (2) of the Table
below Rule 570. G
14. We are, therefore, of the opinion that the Tribunal was
correct in law in holding that the assessee was entitled to avail
of MODVAT credit in respect of the subject items viz. steel
plates and M.S. channels used in the fabrication of chimney for
the diesel generating set, by treating these items as capital D
goods in terms of Rule 57Q of the Rules.

15. For the foregoing reasons, we find no substance in the
appeal preferred by the Revenue. The same is dismissed
accordingly. Parties are left to bear their own costs. E

D.G. Appeal dismissed.