CHEMPLAST SANMAR Vs. CCE

JUDGEMENT

(1.) THESE appeals filed by the assessee are against orders of the lower appellate authority denying them Modvat credit under Rule 57Q of the erstwhile Central Excise Rules, 1944 in respect of the following items:

(2.) BOTH sides submitted that capital goods credit had been denied to the assessee by the lower authorities in respect of the above items for periods prior to 16.3.1995. The benefit was denied in respect of bolts and nuts on the ground that it was not admissible to anything used only for fixing machinery. We find that, as rightly pointed out by learned Counsel, bolts and nuts used for fixing machinery were held to be eligible for capital goods credit under Rule 57Q in the case of Birla Jute and Industries v. CCE 2001 (135) ELT 280 (Tribunal) and that the Tribunal's decision was upheld by the Hon'ble Supreme Court vide Commissioner v. Birla Jute and Industries 2002 (139) ELT A93 (SC). Capital goods credit on such bolts and nuts was allowed by the Tribunal in the case of Search Chem Industries v. CCE also. Modvat credit was denied on forklift and spares, valves and measuring instruments on the ground that these goods were specified for the benefit under Rule 57Q only with effect from 16.3.1995 and hence the benefit was not admissible for any prior period. It is true that these items were specifically included in Clause (d) of the Explanation to Rule 57Q(1) only on 16.3.1995. But the question remains as to whether these goods were already covered by any of the earlier Clauses (a), (b) and (c). In the case ofLarsen and Toubro v. CCE , forklift and certain other material handling equipments were held to be eligible capital goods for a period prior to 16.3.1995. It was so held in the case of Commissioner v. M.M. Forgings . In respect of valves, capital goods credit was allowed to the same assessee [M/s Chemplast Sanmar Ltd.] in respect of values. Learned Counsel submitted that the said decision was not challenged by the Department and this submission was not contested. In respect of measuring instruments (pressure gauges, etc.) capital goods credit was allowed for a period prior to 16.3.1995 in the case of Commissioner v. Coimbatore Cots and Coating Ltd 2005 (192) ELT 672 (Tribunal). All the above decisions cited by learned Counsel are in accord with the Tribunal's Larger Bench decisions in the cases of Jawahar Mills Ltd. v. Commissioner , [upheld by the Supreme Court in Commissioner v. Jawahar Mills Ltd. 2001 (132) ELT 3 (SC)] and Commissioner v. Surya Roshini Ltd. (Tri.) and we follow the same and allow capital goods credit in respect of the items considered above.

(3.) CREDIT was denied to the assessee in respect of iron and steel products on the ground that goods used as structurel support to plant and machinery were not eligible capital goods. Learned Counsel relied on Commissioner v. J.K. Cement Works 2000 (125) ELT 480 (Tribunal), wherein capital goods credit had been allowed in respect of supporting structures, MS angles, bars, rods, etc. After considering the arguments, we are inclined to follow the cited decision, with approval. The Revenue considers isolator and glass fittings to be mere light fittings in the factory premises and hence to be ineligible for capital goods credit. We find that it is not in dispute that these fittings were parts or accessories of a weighing equipment, used for weighment of in -process material in the process vessel. These were not mere light fittings as understood by laym n. Measuring and weighing equipments were held to be eligible capital goods in the case of J.C.T. Electronics v. Commissioner 2000 (124) ELT 541 (Tribunal) and therefore parts/accessories of such equipments must also be eligible for capital goods credit under Rule 57Q. We also notice that, in the case of Reliance Industries v. Commissioner 2004 (178) ELT 529 (Tribunal), light fittings used in the work area of the factory were held to be eligible for capital goods credit. Hence the assessee's challenge in respect of isolator and glass fittings must succeed. The Revenue considers aluminium plates (used for covering pipes and pipe joints) as item used for maintenance purpose. We find that the pipes and pipe joints, used for conveyance of steam required for the processing of materials, were always covered with aluminium plates and therefore such plates cannot be considered to have been used for repairs or maintenance. These plates were used to prevent leakage of steam from the pipeline. Such items were held to be eligible for capital goods credit in the case of Grasim Industries v. Commissioner 2001 (137) ELT 1341 (Tribunal). In respect of methyl chloride cylinders and parts thereof, the Revenue would say that these were used only for packing methyl chloride and hence not to be considered to have been used for the manufacture of the said product. We find that these cylinders were specially designed for receiving and containing liquified methyl chloride produced by the appellant. The liquification of the gas was part of the process of manufacture. Hence the cylinders which functioned as receptacles for the liquified gas should be held to have been used for the manufacture of liquified methyl chloride. Similar cylinders for liquified chlorine gas were held to be eligible capital goods for Modvat credit in the case of Commissioner v. Hukumchand Jute Industries Ltd. 2001 (137) ELT 633 (Tribunal). Hence the decision of the lower appellate authority in regard to aluminium plate and methyl chloride cylinders and parts thereof will be set aside. In respect of the remaining items, the contention of the Revenue is that these are consumables and hence not capital goods. Relying on the Tribunal's decision in National Radio and Electronics Co. Ltd v. Commissioner - , learned Counsel argued that it was not correct to make a distinction between consumables and non -consumables in the Modvat scheme. Any part of a machine might be called consumable on account of the fact that it required replacement after one use or a few repeated uses, but it would not cease to be part of the machine. In other words, according to learned Counsel, even consumable parts of a machinery were also parts of the machinery for all purposes and hence would be capital goods only. She also cited decisions covering the individual items. In respect of welding wire, reliance was placed on Madras Aluminium Co. v. Commissioner 2001 (136) ELT 182 (Tribunal), wherein welding wires used for joining process piplines was held to be eligible for input duty credit under Rule 57A of the Central Excise Rules, 1944. In this connection, it was contended that, where an item was found to be an input eligible for Modvat credit under Rule 57A, such benefit should be granted, whether or not it was claimed by the assessee. Contextually, reliance was placed on the Tribunal's Larger Bench decision in Commissioner v. Modi Rubber Ltd. , wherein a declaration filed by the assessee for the purpose of Rule 57Q was held to be sufficient for the purpose of extending Modvat credit on lubricants under Rule 57A. The same arguments were advanced by learned Counsel in respect of most of the remaining items also. Decisions were also cited for individual items. In the appellant's own case vide 2001 (132) 504 (Tribunal), accessories of pipes and fittings were held to be eligible capital goods. Admittedly, hose washer was used by the appellants as accessory of pipes and fittings and hence capital goods credit should be extended to the said item. In the case of Commissioner v. Nagarjuna Agrichem Ltd. , input duty credit was allowed in respect of paint used for the upkeep and maintenance of machinery and pipeline. In respect of neoprene gaskets/packing sheet, reliance was placed on Commissioner v. SPIC , wherein gasket sheets used to seal joints of the plant and machinery were held to be eligible for Modvat credit. As regards neoprene hose connector, learned Counsel relied on the decision in their own case vide dual pipe assembly was held to be eligible capital goods for Modvat credit. In respect of panther packing and seal, again, reliance was placed on the decision in their own case vide , wherein seal rings, inserts and packing which were used to arrest leak in pumps and other equipments were held to be capital goods eligible for credit. As regards adhesive (which was used for fixing rubber sheet to the bottom and sides of electrolytic cells) and maleic resin (which was used for assembling various parts of machinery), learned Counsel claimed support from the Tribunal's decision in National Radio and Electronics (supra), wherein consumable parts of machinery were held to be capital goods eligible for Modvat credit. Metco NS powder was used in the co -generation plant for proper functioning of the burner. It was not in dispute that the co -generation plant is within the factory premises and that steam and electricity generated in that plant were captively consumed in the manufacture of final products. Hence the powder which was consumed in the co -generation plant should be held to be an input, like the welding wire used in the polymer production department, and, in terms of the Larger Bench decision in Modi Rubber (supra), the assessee is eligible for input duty credit on Metco NS powder. On the same reasoning, input duty credit is admissible to the chemicals viz. Duolite (which was used to treat water required for the process of manufacture),. Prodorlac and Conbextra. (which were used as binders for pipelines). Spring ball, lock nut, lock washer, oil seal, 'O' ring, seal ring, throwaway ring, V ring, packing and back -up ring (used as parts of reactor cleaning pump used in the polymerization plant) are all eligible for credit in terms of the decision in the assessee's own case vide and the decision in Grasim Industries (supra). Similarly, credit is admissible to spiraget gasket (used as parts of pipelines to prevent leakage of steam) in terms of Grasim Industries (supra), wherein goods used to arrest leakage was held to be eligible for Modvat credit. Again, the decision in the assessee's own case also supports their case for Modvat credit on the above item. But, the assessee's' claim for Modvat credit on alumina catalyst, which was used for research and development purposes appears to have been rightly denied by the lower appellate authority. Nothing used in the R&D department of the factory can be held to have been used for, in, or in relation to the manufacture of final products. In respect of all other items the assessee's challenge succeeds.