CCE Vs. SUMANGALA SPINNING MILLS LTD.

JUDGEMENT

(1.) THIS appeal by revenue is directed against Order -in -Appeal No. 227/96 (MDU) dated 9.7.1996 by which the ld. Commissioner (Appeals) has allowed them modvat credit on proportionate basis on cotton carding/combing machines.

(2.) AGGRIEVED by this order the revenue has come in appeal on the ground that in view of Notification No. 60/94 dated 21.10.1994 which allowed them the modvat credit in respect of carding machines the sand can be given prospective effect only and the capital goods which were purchased prior to 21.10.1994 cannot be considered for modvat credit on such capital goods. Secondly the carded/combed cotton emerging out of the impugned capital goods are classified under Chapter 52.02. Inasmuch as Chapter heading 52.02 was not specified as eligible item under Rule 57Q till 21.10.1994 and duty on these capital goods has been paid before 21.10.1994 and therefore the assessees are not eligible to take credit under Rule 57Q.

(3.) ARGUING on behalf of the respondent -assessee, Counsel Shri M.V. Raman submits that the issue has been settled by the Larger Bench rendered in the case of Ballarpur Industries Ltd. v. CCE, as reported in wherein it was held that Clause (c) under Explanation to Rule 57A introduced in 1994 covering inputs used as is an inclusive definition of the expression 'input' - the fact that Clause (d) covering 'inputs used as fuel for generation of electricity' under Explanation to Rule 57A was introduced with effect from 16.3.1995 cannot automatically lead to the conclusion that prior to that date input used for generation of electricity will not be entitled to modvat credit. This was also followed in the matter of CCE v. Mettur Spinning Mills reported in, 2001 (135) ELT 678 : wherein it was held that not duty is leviable on intermediate product namely carded/combed cotton arising during manufacture of polyester/cotton blended yarn. Counsel also invited my attention to the judgment rendered in the case of Modern Woolens Ltd. v. CCE as reported in, 1998 (89) ELT 411 :, 1998 75 ECR 47 (T) wherein it was held that since carded gilled slivers wholly of wool emerging at intermediate stage during the manufacture of woolen yarn is incapable of being marketed, it is not goods, despite its mention in the tariff. He also invited my attention to the judgment rendered by this Bench in the case of CCE, Trichy and Coimbatore v. Sudarshanam Spinning Mills Ltd. and Ors wherein modvat credit has been allowed on the capital goods that is carded/combed machinery used for manufacture of sliver which is intermediate product in the manufacture of cotton yarn which is their final product on which duty is paid. In this connection he also invited my attention to the clarification given by the CBEC vide Circular No. 665/56/2002 -CX dated 25.9.2002 to the effect that modvat credit cannot be denied on capital goods, used in intermediate products exempt from duty under the new set of rules. Para 2 & 3 of the said circular are extracted herein below: