IN THE HIGH COURT OF HIMACHAL PRADESH SHIMLA Ex. Ref. No. 5 of 2000 Date of decision: 24.6.2008 Commissioner of Central Excise Petitioner Vs. M/s Gujarat Ambuja Cement Ltd. Respondent Coram: The Hon’ble Mr. R.B.Misra, Judge. The Hon’ble Mr. Justice Sanjay Karol, Judge. Whether approved for reporting? For the Petitioners: Mr.Sandeep Sharma, Assistant Solicitor General of India. For the Respondent : S/Shri Rahul Mahajan and Sudeep Singh Bhangoo, Advocates Per R.B.Misra, J. (Oral) Heard Mr. Sandeep Sharma, learned Assistant Solicitor General of India for the petitioner. Heard Mr. Rahul Mahajan, learned counsel for the respondent. 2. The present Central Excise Reference has been preferred under Section 35H(1) read with Rule 218 of Central Excise Act, 1944 (hereinafter referred to as the Act) in reference to order dated 20.9.1999 of Central Excise Gold (Control) Appellate Tribunal, New Delhi (in short called `CEGAT’) whereby the following substantial question of law has been preferred for adjudication:- 2 “During the relevant period (May, 1995 to July, 1995) only those items were covered under the definition of Capital Goods which were used for producing or processing of any goods or for bringing about any change in any substance for the manufacture of final products or which found mention under sub-clause (d) of Clause (1) under Explanation to Rule 57Q of Central Excise Rules, 1944. The question arises “whether plates/Rounds, TOR Steel, Channels, Angles, Sheets, Industrial Cables, Fuses, Plugs, Sockets, Electric Machinery used in Hydraulic system Motor Pumps/Electrical Motors were covered under the definition of Capital Goods during the relevant period when the same were not used for producing or processing of any goods or for bringing about any change in any substance for the manufacture of final products or which found no mention under sub-clause (d) to clause (1) under explanation to Rule 57Q of the Central Excise Rules, 1944.”. 3. In order to adjudicate the present reference, it is necessary to give brief facts of the case. M/s Gujarat Ambuja Cement Ltd. Darlaghat, district Solan is engaged in the manufacture of cement/cement clinker falling under Sub Heading No. 2502.29/2502.10 of the Schedule to the Central Excise Tariff Act, 1985 (5 of 1986). They claimed modvat credit on certain capital goods under Rule 57Q of the Central Excise Rules, 1944 (in short called Rules). They were served with a show cause notice dated 12.1.1996 for having claimed the modvat credit on certain goods illegally as the same did not 3 fall within the definition of `capital goods’. They were called upon to show cause as to why the credit of Rs. 6,79,867.40 be not disallowed and recovered from them under Rule 57 U of the Rules read with Section 11-A of the Act. The penal action under Rule 173Q was also proposed to be taken and for that also, they were called upon to show cause. 4. The respondents contested the said show cause notice by alleging that the goods on which they have claimed modvat credit fall within the definition of `capital goods’ and the proceedings deserve to be dropped against them. The Deputy Commissioner, however, vide his order dated 8.8.1996 did not agree with the contention of the respondents in toto. He allowed the modvat credit to the respondents of Rs. 4,51,009.02 and disallowed credit to them of Rs. 2,28,857.38 and directed recovery of that amount under Rule 57U/57I of the Rules. No penalty was, however, imposed by him on the respondents. 5. For adjudicating the present question of law, it is necessary to refer to the relevant provisions of Rule 57Q of Central Excise Rules, 1944 (for short the Rules) as below:- “57-Q. Applicability.-(1) 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 allowed towards payment of duty of excise leviable on 4 the final products, or as the case may be, on such capital goods, if such capital goods have been permitted to be cleaned under Rule 57-S, 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- (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 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. Explanation:-For the purposes of this section,- (1) `capital goods’ means- (a) machines, machinery, plant, equipment, apparatus, 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 prarts and accessories of the 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. (2) `specified duty’ means duty of excise or the additional duty under Section 3 of the Customs Tariff act, 1975 (51 of 1975).” 5 6. Feeling aggrieved by this order, the appeal was filed, while respondents filed only cross objections. The Commissioner, after hearing the parties, upheld the order of the Deputy Commissioner and rejected the appeal of the Revenue and cross objections of the respondents. 6. The petitioner has challenged the validity of the impugned order of the Commissioner (Appeals) allowing modvat credit in respect of certain goods as detailed in the orders itself on the ground that these do not fall within the definition of `capital goods’. 7. Learned `CEGAT’ has held that the items claimed are `capital goods’ by following the decisions in Grasim Cement Vs. CCE, Raipur 1997 (96) ELT 354(T0; Jaypee Reva Cements Vs. CCE, Raipur 1997 (96) ELT 167; Dabur India Ltd. Vs. CCE, Meerut 1998 (98) ELT 674 (T) and Malvika Steel Ltd. Vs. CCE, Allahabad 1998 (97) ELT 530 (T) . 8. The learned `CGAT’ has observed that the Commissioner while upholding the order of Deputy Commissioner who partly allowed modvat credit on certain goods and partly disallowed on the other goods, is perfectly valid being based on well settled law laid down in the abovementioned cases. 6 9. Learned counsel for the Union of India, however, while dealing with the decision of Supreme Court in Commissioner of Central Excise Coimbatore and others Vs. Jawahar Mills Ltd. and others (2001) 6 SCC 274 has fairly submitted that the Supreme Court has indicated that the language used in explanation to Rule 57Q of Rules is said to be liberal and the Supreme Court in Jawahar Mills case (supra) has very categorically indicated that the items brought under capital goods would depend upon its user. However, learned counsel for the petitioner has very emphatically submitted that in the explanation clause of capital goods indicated in Rule 57 Q the items indicated in explanation 1(a), 1(b) and 1(c) are very specific and categorical and the items for which benefit was being given by the respondents are not directly covered under the category of capital goods. 10. It has been submitted that on analysis of different items claimed for by the respondent and on concurrent analysis of their uses by the Commissioner and by the learned Tribunal, it has become abundant that plates/Rounds, TOR Steel, Channels, Angles, Sheets, Industrial Cables, Fuses, Plugs, Sockets, Electric Machinery used in Hydraulic system Motor Pumps/Electrical Motors by their use are to be covered in the definition of capital goods more specifically in the light of observations made by the Supreme Court in Jawahar Mills Ltd. (supra). 7 11. After hearing learned counsel for the parties and after perusal of the documents, we are of the considered view that the learned tribunal has correctly analysed that the items for which the benefits are being claimed for has rightly been arrived at to be covered under the capital goods. Therefore, in view of the above analysis, the question of law referred to above is dealt with accordingly in favour of the respondent. Accordingly, the Central Excise Reference No. 5 of 2000 is disallowed. ( R. B. Misra ), J. June 24, 2008(K) ( Sanjay Karol ), J.