CX - Modvat Credit - Capital Goods - Crane, Loader, Rebar Coils, CTD Bars, Cement and TOR Steel used for construction are capital Goods: Madras HC

CX - Modvat Credit - Capital Goods - Crane, Loader, Rebar Coils, CTD Bars, Cement and TOR Steel used for construction are capital Goods: Madras HC 

CHENNAI, SEPT 06, 2011: THE respondent/ assessee filed the declarations under Rule 57T for availing credit of duty paid on:

1. Loader, Crane with accessories, Cement, Bulldozer

3. Rebar Coils, CTD Bars and TOR Steel

before the Original Authority. On the ground that the aforementioned goods are not in the nature of capital goods within the purview of Rule 57Q and the declarations should be disallowed, a show cause notice dated 26.02.1996 was issued followed by the original order dated 02.09.1996, disallowing the declarations.

The respondent/ assessee preferred appeals before the Commissioner of Customs and Central Excise (Appeals) and by a common order dated 17.3.1998 though the Commissioner has accepted the claim of the assessee for Modvat credit on the ground that the Bulldozer, Loader and Crane with accessories are capital goods, but did not agree for such a claim in respect of Rebar Coils, CTD Bars and TOR Steel on the ground that they are not capital goods, as they are used only for civil construction work.

Being aggrieved by the respective portion of the order of the Commissioner of Appeals, both the Revenue and the respondent/ assessee preferred further appeals to the Customs, Excise & Service Tax Appellate Tribunal. By the impugned common order dated 14.05.2004, the Tribunal not only upheld the finding as to the entitlement of the assessee for Modvat credit in respect of the Crane and Loader, but remanded the appeal insofar as the Bulldozer is concerned and insofar as the appeal filed by the assessee is concerned, claiming Modvat credit on Rebar coils, CTD Bars, TOR Steel, Joists and Cement, the Tribunal having regard to the law declared by the Apex Court in CCE vs. Jawahar Mills Ltd. (2002-TIOL-87-SC-CX) holding that the explanation (1) to Rule 57Q is to be construed very liberally, considered the above items as capital goods and ultimately allowed the appeal filed by the assessee .

Under the above circumstances, these Civil Miscellaneous Appeals are filed at the instance of the Commissioner of Central Excise, Tiruchirapalli before the High Court of Madras.

The High Court observed,

As far as the Crane with accessories and Loader are concerned, there cannot be any difficulty in holding that they will come within the items of machinery or equipment used for production or processing of any goods for the manufacture of final products. As has been held by the Apex Court in Jawahar Mills Limited 's case, the Rule makes it explicitly clear that the order of the Tribunal in dismissing the appeal preferred by the Revenue in respect of these two items and remitting the matter for fresh consideration in regard of the Bulldozer requires no consideration. As far as the other items, namely, Rebar Coils, CTD Bars, TOR Steel and Cement are concerned, as to whether they are capital goods or not, the Tribunal having regard to the law laid down by the Apex Court in Jawahar Mills 's case, has liberally construed the above Rule and factually found that these are the items, which are used for the purpose of construction of the plant comprising of concrete foundations, concrete silos for storing raw materials, clinker and cement, pre-heater tower structure, load centres etc.

Having regard to the above factual findings, the Tribunal had found that these items are not used for civil construction, but for the construction, which are absolutely necessary for establishing a manufacturing unit for cement.

The question as to how Rule 57Q should be interpreted came up recently before the Apex Court in the judgment - Commissioner of Central Excise, Jaipur v. Rajasthan Spinning & Weaving Mills Ltd. -(2010- TIOL-51-SC-CX) . In paragraphs 12 and 13, while applying the "user test" and following the Jawahar Mills 's case, the Apex court has held that even though steel plates and M.S.Channels used in the fabrication of chimney would fall within the ambit of "capital goods".

The aforesaid judgment makes it clear that the Court should apply liberal test to find out as to whether a particular item would fall under the definition of "capital goods" or not.

Having regard to the factual finding of the Tribunal that the above items are used for civil construction, High Court was of the considered view that the order of the Tribunal requires no interference.

Accordingly, these appeals are dismissed and the question of law raised in the appeals is answered against the Revenue.

(See 2011-TIOL-558-HC-MAD-CX in 'Excise')