MADRAS CEMENTS LTD.versusCOMMISSIONER OF CENTRAL EXCISE

                    [2010) 6 S.C.R. 169


                MADRAS CEMENTS LTD.                            A
                             v.
         COMMISSIONER OF CENTRAL EXCISE
            (Civil Appeal No. 2037 of 2006)
                      MAY 06, 2010
                                                               B
     [ALTAMAS KABIR AND CYRIAC JOSEPH, JJ.]

     Central Excise Rules, 1944: Rule 57Q - Modvat credit
on capital goods - Assessee claiming modvat credit under
Rufe 57Q in respect of components, spares and accessories · C
- Revenue disallowing credit holding that the items in
question were not capital goods - Justification of - Held:
Justified as assessee failed to identify the machinery for which
items in question were used.
                                                               D
    The dispute in the appeals related to the eligibility of
the appellant-assessee for Modvat Credit on certain
capital goods which were said to be used as
components, spares and accessories in the mining
process in the manufacture of the final product for the        E
period November and December, 1999.
    Dismissing the appeals, the Court

    HELD: In order to avail of Modvat/Cenvat credit, an
Assessee has to satisfy the Assessing Authorities that         F
the capital goods in the form of component, spares and
accessories had been utilized during the process of
manufacture of the finished product. Admittedly, the
appellant was not able to identify the machinery for which
the goods in question were used. In the absence of such        G
identification, it was not possible for the Assessing
Authorities to come to a decision as to whether Modvat
Credit would be given in respect of the goods i.n
question. [Paras 12, 13]
                            169                                H
    170      SUPREME COURT REPORTS              [201 OJ 6 S.C.R.


A     Jaypee Rewa Cement v. Commissioner of Central
  Excise (2001) 6 SCC 586; Vikram Cement v. Commissioner
  of Central Excise, Indore (2006) 3 SCC 351; Commissioner
  of Central Excise v. J.K. Udaipur Udyog Ltd. (2004) 7 SCC
  344; Vikram Cement v. Commissioner of Central Excise,
B Indore (2005) 7 SCC 741, referred to.

                          Case Law Reference

          (2001) 6 sec 586        referred to           Para 8

          (2006) 3 sec 351        referred to           Para 8
c
          (2004) 1 sec 344        referred to           Para 8

          (2005) 1 sec 741        referred to           Para 9

      CRIMINAL APPELLATE JURISDICTION : Criminal Appeal
D No. 2037 of 2006.

        From the Judgment & Order dated 18.07.2005 of the
    Customs, Excise and Service Tax Appellate Tribunal, South
    Zonal Bench, Chennai in Appeal No. E/108/04/MAS.
E                               WITH

    C.A. No. 7443 of 2008

        A.K. Ganguli, A.M.P. Latha, Prabha Swami for the
F   Appellant.

        Gaurav Banerjee, ASG, Rajiv Nanda, Balaji Subramanium,
    B. Krishna Prasad, Shreekant N. Terdal for the Respondent.

          The Judgment of the Court was delivered by.
G
        ALTAMAS KABIR, J. 1. The short point involved in these
    appeals is whether the AppellanUAssessee is eligible for
    Modvat Credit on certain goods for the period comprising
    November and December, 1999.
H
  MADRAS CEMENTS LTD. v. COMMISSIONER OF                      171
     CENTRAL EXCISE [ALTAMAS KABIR, J.]
     2. The Appellant, Mis Madras Cements Ltd., Alathiyur,           A
hereinafter referred to as 'the Assessee' is the holder of Central
Excise Registration No.1/Cement/97 and is engaged in the
manufacture of cement and clinker coming within the ambit of
Chapter 25 of the Central Excise Tariff Act, 1985, hereinafter
referred to as 'CETA, 1985'.                                         B

      3. The Revenue's contention is that for the months of
November and December, 1999, the Assessee had taken
Modvat Credit on ineligible capital goods amounting to
Rs.8,42,843/-. The further contention of the Revenue is that the     C
Assessee was not entitled to such credit, inasmuch as. it had
taken Modvat Credit on items which did not come within the
purview of capita~ goods under Rule 570 of the Central Excise
Rules, 1944, although it was claimed by the Assessee that the
said items comprised components, spares and accessories
within the meaning of Explanation 1(d) of Rule 570(1) relating       D
to capital goods. Accordingly, on 31st March, 2000, the
Assessee was issued show cause notice no.11 of 2000 asking
it to show cause as to why the amount of Modvat Credit of
Rs.8,42,843/- should not be disallowed and recovered under
Rule 57U(3) of the Central Excise Rules, 1944, and why interest      E
at the rate of 20% per annum should not be demanded under
Rule 57U thereof, if the Modvat Credit wrongly availed was not
paid within three months from the date of receipt of the demand
notice. The Assessee was also asked to show cause as to why
a penalty should not be imposed under Rule 1730(b)(b) of the         F
aforesaid Rules.

     4. Replying to the said show cause notice, the Assessee
asserted that the inputs used in or in relation to the manufacture
of the final products were eligible for Modvat Credit and that       G
the ground plan had been enclosed with the application for grant
of registration certificate indicating that the mines were also
situated in the factory complex and were an integral part of the
factory. The Assessee contended that parts of the Bucket

                                                                     H
    172    SUPREME COURT REPORTS                [201 OJ 6 S.C.R.


A Elevator (8434.00) and Wagon Loaders (8431.00) were parts
  of machinery mentioned under serial nos.1 to 4 of the Table
  under Rule 570(1) and were eligible for Modvat Credit as per
  the Board's Circular No.276/110/96 TRU.

B      5. The show cause notice was adjudicated by the Assistant
  Commissioner of Excise on 4th June, 2003, and by his order
  No.22 of 2003, the Assistant Commissioner disallowed Modvat
  Credit amounting to Rs.4,31,749/- with regard to some of the
  items. The Assistant Commissioner held that, inasmuch as, the
  mandatory requirement stipulated in serial no.5 of the Table to
C Rule 570 had not been complied with, he was not inclined to
  allow Modvat Credit in respect of the goods listed in serial
  nos.32 to 43 of the annexure to the notice. An appeal preferred
  before the Commissioner (Appeals) against the order of the
  Assistant Commissioner was rejected on 16th October, 2003,
D upon holding that the items in question were not capital goods
  and were not, therefore, entitled to Modvat Credit admissible
  under Rule 57A as well. The Commissioner (Appeals) held that
  the credit was not admissible on the goods listed under serial
  nos.32 to 43 of the show cause notice.
E
       6. The matter was then taken in appeal before the
  Customs, Excise and Service Tax Appellate Tribunal, South
  Zonal Bench, Chennai, by way of Appeal No.E/108/04/MAS on
  20th January, 2004, which upheld the order of the
F Commissioner (Appeals). Aggrieved by the order of CESTAT,
  the Appeilant filed the present Appeals before this Court.

       7. Appearing for the Appellant/Assessee, Mr. A.K.
    Ganguli, learned Senior Advocate, submitted that the case of
    the Assessee was squarely covered by the decision of this
G Court in Jaypee Rewa Cement vs. Commissioner of Central
  Excise [(2001) 8 SCC 586], wherein explosives used for the
  extraction of limestone for manufacture of cement were held to
  fall under Chapter 36 of the Schedule to CETA, 1985, and while
  cement comes under Chapter 25 and is a final product,
H
  MADRAS CEMENTS LTD. v. COMMISSIONER OF                    173
     CENTRAL EXCISE [ALTAMAS KABIR, J.]
explosives fall under Column 2 and that the Assessee therein       A
would be entitled to claim credit on the duty paid on explosives
as they were used for the manufacture of the intermediate
produce, namely, limestone which, in turn, was used in the
manufacture of cement.
                                                                   B
     8, Mr. Ganguli also submitted that the issues in the instant
case stood settled by the larger Bench in Vikram Cement vs.
Commissioner of Central Excise, Indore [(2006) 2 SCC 351),
to which the correctness of the decision in the case of
Commissioner of Central Excise vs. J.K. Udaipur Udyog Ltd. C
[(2004) 7 SCC 344) had been referred. The Three-Judge
Bench went on to hold that the Schemes of the Modvat and
Cenvat were not different and that the conclusion of the Court
in the J.K. Udaipur Udyog Ltd. 's case (supra) that the decision
in Jaypee Rewa Cement's case (supra) would have no
application to the case was not accepted on the ground that D
the Cenvat Rules only reflected the Modvat Rules where the
Rules had simply been re-arranged. Mr. Ganguli submitted that, ·
inasmuch as, the items sought to be excluded by the Assistant
Commissioner were components and accessories used in the
mining process for manufacture of the final product, and were E
covered by Sub-heading No.84.31 to the Table annexed to Rule
57Q after its substitution by Notification No.6/97-CE(NT) dated
1.3.1997, as subsequently corrected on 1.3.1997, 10.3.1997
and 9.4.1997, the Assessee would be entitled to the benefits
of Rule 57Q of the Central Excise Rules, 1944 and the F
impugned orders of the Revenue as well of the High Court were
liable to be quashed.

      9. On behalf of the Respondent, Commissioner of Central
Excise, it was submitted by learned Additional Solicitor           G
General, Mr. Gaurav Bane~ee, that although the Assessee had
claimed the benefit of the entry at serial No.5 of the Table
annexed to Rule 570(1) in respect of the capital goods
mentioned at serial nos.32 to 43, it had failed to specify the
tariff heading under which their machinery/equipment, of which     H
        174       SUPREME COURT REPORTS                [2010] 6 S.C.R.


  the subject capital goods were claimed to bP. accessories were
P,,..
  classifiable, nor could they even disclose the identity of such
  machinery and equipment to the authorities. Mr. Banerjee also
  submitted that at no stage of the proceedings before the
  Tribunal or the High Court was any attempt made by the
B Assessee to identify the machinery in the absence whereof they
  would not be eligible for Modvat Credit. It was urged that as
  had been held in the decision of this Court in Vikram Cement
  vs. Commissioner of Central Excise, Indore [(2005) 7 SCC
  74], in order to be eligible for Cenvat Credit on capital goods
c under the Cenvat Credit Rules, 2001 and 2002, which requires,
  inter alia, that such goods must be used in the factory for the
  manufacture of the final product. Accordingly, an item not
  satisfying the said condition could not be brought within the
  scope of "capital goods" by any interpretive process, whereby
  claim for Cenvat Credit on the capital goods in question could
0
  be entertained. Mr. Banerjee submitted that since the said
  decision, as also the decision in the case of J.K. Udaipur
  Udyog Ltd. 's case (supra), were available at the relevant time,
  the impugned decision arrived at by the High Court could not
  be assailed on account of the subsequent decision of the
E Constitution Bench on the reference made with regard to the
  views expressed in J.K. Udaiput Udyog Ltd. 's case (supra).

       10. Mr. Banerjee urged that the impugned judgment of the
  Tribunal ought not, therefore, to be interfered with and the
F appeals of Madras Cements Ltd. were liable to be dismissed.

      11. As indicated initially, the short point involved in these
  appeals relates to the eligibility of the Assessee for Modvat
  Credit on certain capital goods which were said to have been
G used as components, spares and accessories in the
  manufacturing process of the Appellant for the period in
  question.

              12. In order to avail of Modvat/Cenvat credit, an Assessee
        has to satisfy the Assessing Authorities that the capital goods
H
  MADRAS CEMENTS LTD. v. COMMISSIONER OF                      175
     CENTRAL EXCISE [ALTAMAS KABIR, J.]
in the form of component, spares and accessories had been            A
utilized during the process of manufacture of the finished
product.

       13. Admittedly, in this case the Appellant was not able to
  identify the machinery for which the goods in question had been    B
  used. In the absence of such identification, it was not possible
 for the Assessing Authorities to come to a decision as to
 whether Modvat Credit would be given in respect of the goods
  in question. There is no difficulty with regard to the decisions
  rendered in Jaypee Rewa Cement's case (supra) or the
  Constitution Bench judgment in Vikram Cement's case (supra).       C
  The question is whether the Assessee was able to specify to
  the Assessing Authorities that the goods in question had been
  used as components, spares and accessories for the
  manufacture of the finished product. The same holds good in
  respect of Mr. Ganguli's assertion that the goods in question      D
, were included under paragraph 84.31 of the Table set out in
  Rule 570 of the Central Excise Rules, 1944.

    14. We are not, therefore, inclined to interfere with the
orders of the Tribunal and the Appeals are accordingly,              E
dismissed.

       15. There will be no orders as to costs.

D.G.                                        Appeals dismissed.