@JUDGMENTTAG-ORDER
Satish K. Agnihotri, J.
The instant reference has been made by the Customs, Excise & Gold (Control) Appellate Tribunal, West Block No. 2, R.K. Puram, New Delhi (for short `the Tribunal'') to consider the following substantial questions of law:
Whether credit as inputs in terms of Rule 57A of the Central Excise Rules, 1944 is admissible on the following items:
1. Explosives
2. Grinding Media.
3. Cylpebs
4. Refractories (fire bricks)
5. Steel Castings
6. Ball Bearings
7. Electrodes
8. Refractory Cement
9. Rubber and articles of rubber
The facts, in nutshell, are that the respondent-Company i.e. Century Cement, Raipur is engaged in manufacture of cement. The respondent claimed Modvat credit of duty paid on a number of inputs. The applicant-Department denied the credit on the ground that the items were of the nature of machines/machinery which do not fall within the definition of inputs. An appeal was preferred by the respondent-Company which was partly allowed by order dated 09.05.1997, holding explosives, grinding media, cylpebs, refractories (fire bricks) steel castings, ball bearings, electrodes, refractory cement, rubber and articles thereof and HDPE bags to be entitled for Modvat credit. But it was held that Acetylene gas, Oxygen gas, cables, batteries, and electric insulated wires are not eligible to modvat credit. On the reference application filed by the applicant-Department, the Tribunal has made the instant reference to this Court.
2. The functioning of the above stated items in the manufacture of cement, are as under:
(a) Explosives : The `Explosive'' viz. Safety Fuses, detonating Fuses, Denoling Caps, Igniters are used for blasting in the lime stone mines situated one to five kilometers away from the cement factory. The `Explosives'' are used in the `mines'' governed under the Mines Act, in relation to mining of lime stone and not in the factory.
(b) Grinding Media (Steel Balls) and Cylpebs: Grinding Media (Steel Balls) and Cylpebs are used in the Cement Ball Mill for grinding the Clinker to obtain cement. These are specially cast steel balls which are used to grind the cement in a rotary cement ball mill. Where they strike against each other and against the wall of the ball mill and crush the clinker which comes in their way. The clinker cannot be crushed or powdered in a Ball Mill in the absence of such Grinding Media (Steel Balls) and Cylpebs. These Grinding Media (Steel Balls) and Cylpebs are "capital goods".
(c) Refractories (Fire Bricks) and Refractory Cement: Refractories (fire bricks) are used as lining in the kiln. These Refractories (fire bricks) are fixed together and laid in the kiln with the help of Refractory Cement. Kiln is a capital goods which falls in the category of machines, machinery, plant which are excluded from the ambit of the definition of "inputs" as provided under Rule 57-A of the Central Excise Rules. The Kiln is not complete until and unless it is lined with Refractory Bricks with the help of Refractory Cement to act as an insulation to preserve the head within the Kiln and also to protect the shell of the Kiln. Refractories after specified intervals require replacement and the Kiln is relined with fresh refractory (fire bricks) with the help of Refractory Cement.
(d) Steel Castings: These are special castings which includes "liner plates" etc. These are used as inner lining in various mills such as "Cement Ball Mill", "Coal Mill" etc. to protect the inner shell of such mills. These Ball Mill, such as Cement Ball Mill are, where Clinker is ground with the help of Grinding Media (Steel Balls). These Steel Balls strike under force against the inner wall (Shell) of the Ball Mill. To protect the shell these castings are used as inner lining.
(e) Ball Bearing: Ball bearing by its very nature are component, parts of various machines which are used for either reducing the friction and/or to provide for a rotary movement to various motors and similar machines, machinery. They can be input for machines but not input in relation to manufacture of cement.
(f) Electrodes: These electrodes are "arc welding electrodes" which are used for welding metal parts or for maintenance of various machines. These "arc welding electrodes could be inputs in relation to manufacture of machines but not as an "input" in relation to manufacture of "clinker" or "Cement". The arc welding electrodes are different that the "graphite electrodes" and "mercury anode" electrodes which are used by Chloro Alkali Plants for electrolysis of common salt for obtaining "caustic lye" (NaOH) and Chlorine gas.
In the instant case, the `welding electrodes'' are in no way used in the manufacture of either "clinker" or "cement" and, therefore, they are not considered as "inputs" in relation to manufacture of "clinker" or "cement".
(g) Rubber and articles of Rubber: Rubber and articles of rubber are nothing "conveyor belt" made of rubber and classified under chapter Heading No. 4010.90 of Central Excise Tariff. The conveyor belts are used for carrying load from one place to another and is a component/accessory of material handling system.
Thus, these conveyor belt are not used in the manufacture of final products, but are used in relation to material handling purpose.
3. Explanation to Rule 57-A of the Central Excise Rules, 1944, provides that inputs means which are manufactured or used within the factory of production or in relation to manufacture of final products. The same reads as under:
57-A. Applicability.
(1) xxx
Explanation. - For the purpose of this rule "inputs" includes -
(a) Inputs which are manufactured and used within the factory of production or in relation to the manufacture of final products, and
(b) xxx
4. In Vikram Cement v. Commissioner of Central Excise, Indore1, the Supreme Court has already considered the inputs used in manufacture of cement holding as under:
11. The question whether it was necessary for inputs to be used within the factory premises where the manufacture, as defined in Rule 57-AB, of final products takes place for the purpose of availing of credit, came up before a Bench of three Judges in Jaypee Rewa Cement v. CCE. As in this case, in that case the input in question was explosives which were used in quarrying limestone used in the manufacture of cement. The Court came to the conclusion on a consideration of the Rules which we have already quoted, that sub-rule (1) of Rule 57-A did not in any way specify that the inputs have to be utilized within the factory premises. The Tribunal had relied upon Rule 57-F in coming to the conclusion that the inputs in respect of which credit of duty was claimed must be those which were used in or brought into the factory premises. In reversing the decision of the Tribunal, this Court observed that : (SCC pp. 592-93, paras 12 - 13)
"The Tribunal, however, has not referred the provisions of Rule 57-J, the opening portion of which makes it clear that the said Rule will be applicable notwithstanding anything contained in the other rules. According to Rule 57-J, when the Central Government by notification specified the inputs used in the manufacture of intermediate products received by the manufacturer for use in or in relation to the manufacture of final product, then all such products or on which duty has been paid credit will be allowed..
Explosives would fall under column (2) being a tariff item in Chapter 36; the intermediate product, namely, limestone would fall under column (3) being covered by Chapter 25; and the final product, namely, cement would also fall under Chapter 25 and would fall under column (4). The reading of Rule 57-J alongwith the aforesaid notification can leave no manner of doubt that even in respect of inputs used in manufacture of intermediate product which product is then used for the manufacture of a final product, the manufacturer would be allowed credit on the duty paid in respect of the input. On the explosives a duty had been paid and the appellants would be entitled to claim credit because the explosives were used for the manufacture of the intermediate product, namely, limestone which, in turn, was used for the manufacture of cement.
12. The appeal of the manufacturer was accordingly allowed and it was held that MODVAT was allowable on the use of the explosives in the manufacture of cement irrespective of the fact that the explosives were used directly in the mines and never entered the factory of the manufacture of cement.
25. In our opinion the doubt expressed by the referring Bench about the correctness of the decision in CCE v. J.K. Udaipur Udyog Ltd. was well founded. Having regard to the fact, that the CENVAT Rules in effect substitute the MODVAT Rules, the decision in Jaypee Rewa Cement would continue to apply. The decision in CCE v. J.K. Udaipur Udyog Ltd. holding to the contrary is, in our opinion, not good law. The reference is answered accordingly. All the appeals and special leave petitions will now be listed for being disposed of in the light of this judgment.
5. In Commissioner of Central Excise, Coimbatore & Others v. Jawahar Mills Ltd. & Others2, the Supreme Court held as under:
4. 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 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 weighbridges used in factory of the manufacturers as capital goods and thus qualify for availing MODVAT credit. The goods enumerated in clause (c) need not be used for producing the final product or used in the process of 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.
The aforesaid decision was referred with approval in Commissioner of Central Excise, Jaipur v. Rajasthan Spinning & Weaving Mills Ltd.3
6. In Ramlala Sahkari Chini Mills Ltd. Uttar Pradesh v. Commissioner, Central Excise, Meerut-I4, the Supreme Court interpreted the definition of `input'' as defined in Rule 2(g) of the CENVAT Credit Rules, 2002, as under:
15. Therefore, it is trite that generally the word "include" should be given a wide interpretation as by employing the said word, the legislature intends to bring in, by legal fiction, something within the accepted connotation of the substantive part. (Also see CIT v. Taj Mahal Hotel, Indian Drugs & Pharmaceuticals Ltd. v. ESI Corpn. and T.N. Kalyana Mandapam Assn. v. Union of India). It is also well settled that in order to determine whether the word "includes" has that enlarging effect, regard must be had to that context in which the said word appears. (See: South Gujarat Roofing Tiles Manufacturers Assn. v. State of Gujarat, R.D. Goyal v. Reliance Industries Ltd. and Philips Medical Systems (Cleveland) Inc. v. Indian MRI Diagnostic and Research Ltd.)
However, the matter has been referred to the larger Bench.
7. It is well settled principle of law, as laid down by the Supreme Court in Commissioner of Central Excise, Coimbatore & Others2 which has been referred with approval subsequently, that any of those goods 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 credit. In the case on hand, on examining the above stated articles, it is found that all the above stated articles are used for manufacture of cement and in absence of any of the above stated goods, manufacture of cement is not possible. Applying the `user test'' as laid down by the Supreme Court in the above referred case, the decision of the Tribunal is just, proper and legal. The reference is answered accordingly.
