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Wednesday, September 4, 2013

Custom, Excise & Gold (Control) = In order to avail of MODVAT/CENVAT credit, an assessee has to satisfy the assessing authorities that the capital goods in the form of components, spares and accessories had been utilized during the process of manufacture of the finished product. Admittedly, in this case the appellant was not able to identify the machinery for which the goods in question had been used. In the absence of such identification, it was not possible for the assessing authorities to come to a decision as to whether MODVAT credit would be given in respect of the goods in question.”- It is also not in dispute that the appellant had purchased some machinery from others and such machinery had not even been unpacked by it and in the exact condition it had been transported along with the machinery manufactured by it to Vietnam. Thus, the appellant did not use the purchased machinery in its premises or in its factory and therefore, necessary condition incorporated in the Rules for availing credit of the MODVAT had not been complied with. To avail the MODVAT credit, the input on which excise duty is paid must be used in the manufacture of the final product in the factory of the assessee. The machinery purchased by the appellant had not even been tested or was not even unwrapped in the factory of the appellant. In case of such an admitted fact, it cannot be said that the machinery so purchased from others was used by the appellant in the manufacture of the sugar plant. 25. In the instant case, the appellant had only acted as a trader or as an exporter in relation to the machinery purchased by it, which had been exported and used for setting up a sugar plant in a foreign country. In any case, it cannot be said to have manufactured that plant in its factory. Moreover, it is also clear that the appellant-assessee did not pay any excise duty on the sugar plant set up by it in Vietnam and therefore, there cannot be any question of availing any MODVAT credit. 27. For the aforestated reasons as well as for the reasons stated by the Tribunal in the impugned order, we are of the view that the Tribunal had come to a correct conclusion and the conclusion so arrived at by the Tribunal does not require any interference. 28. The appeals are, therefore, dismissed with no order as to costs.

                               published in    http://judis.nic.in/supremecourt/imgst.aspx?filename=40718                         
  NON-REPORTABLE





                        IN THE SUPREME COURT OF INDIA

                        CIVIL APPELLATE JURISDICTION


                    1 CIVIL APPEAL NOS.5509-5510 OF 2003




M/S. KCP Ltd.                                      .....APPELLANT



                                VERSUS


Commissioner of Central Excise,
Chennai                                      ....RESPONDENT



                              1 J U D G M E N T




1 ANIL R. DAVE, J.



1.    Being aggrieved by the Final Order Nos. 301 & 302/2003 dated 2.5.2003
passed  by  the  Custom,  Excise  &  Gold  (Control)   Appellate   Tribunal
(hereinafter referred to as ‘the CEGAT’), South Zonal Bench,  Chennai,  the
instant two civil appeals have been filed by  the  appellant-assessee.   As
facts of both the appeals are similar, these have been  heard  and  finally
decided together.


2.    The circumstances in which the appeals have arisen,  in  a  nutshell,
are as under:

          The appellant-assessee is a manufacturer of  machinery  for  sugar
    and cement plants and parts thereof falling under  Chapter  84  of  the
    Central Excise Act, 1944.  The appellant not only  sets  up  sugar  and
    cement manufacturing plant as per the specifications of the clients  in
    India but also sets up such plants in foreign countries and here we are
    concerned with a plant which was set up in Vietnam.


3.    The appellant-assessee entered into a contract with M/s  Vina  Sugars,
Vietnam for supply and installation of a  sugar  plant  at  Vietnam  with  a
capacity of 1250 TCD (Tons crushed per  day).  For  the  said  purpose,  the
appellant had manufactured certain machines in its own  factory  which  were
to form part of the sugar plant and certain  machinery,  including  electric
cables etc., which were necessary  for  the  plant  were  purchased  by  the
appellant from other dealers-manufacturers and the said machines-equipments-
cables etc., which had been purchased from others,  along  with  appellant’s
manufactured items, had been put in a  container  and  the  containers  were
transported to Vietnam so that the different parts of the machinery  can  be
assembled and the plant can be set up at Vietnam.

4.    In the course of its business, the appellant had  availed  the  MODVAT
credit on certain goods under the provisions of Rule 57  Q  of  the  Central
Excise Rules, 1944 (hereinafter referred to as ‘the Rules’)  declaring  them
as ‘capital goods’ which had been purchased  by  the  appellant  from  other
manufacturers-dealers in the country and had  sent  to  Vietnam  along  with
other parts of machinery manufactured by the appellant.

5.    The respondent-department was of  the  view  that  the  MODVAT  credit
availed by the  appellant  on  goods,  parts  of  machinery  &  cables  etc.
purchased by it from local market and transported in a container along  with
other parts of machinery manufactured  by  it  was  not  justified  for  the
reason that the  appellant  had  wrongly  described  such  parts-equipments-
cables etc. as ‘capital goods’ though the said goods were not covered  under
the definition of ‘capital goods’ under the provisions of Rule 57 Q  of  the
Rules.  The department was of the view that none  of  such  purchased  items
had been used by the appellant  in  its  factory  premises  in  relation  to
manufacture of the final product manufactured by the appellant.

6.    For the afore-stated reasons,  show  cause  notices  dated  29.03.1996
and 03.03.1997 were issued to the  appellant,  which  had  been  dropped  on
considering the reply of the appellant. Upon review of  the  orders  whereby
the show cause notices had been dropped, the Central  Board  of  Excise  and
Customs directed the Commissioner to file an appeal  before  the  CEGAT  and
therefore, the Commissioner filed the appeals.

7.    It was mainly submitted in the appeals on  behalf  of  the  department
that the goods in respect of which the MODVAT  credit  was  availed  by  the
appellant, were not capital goods as per the provisions of Rule 57Q  of  the
Rules.  It was also submitted that such goods were not used in  the  factory
premises of the appellant in any manufacturing process  and  therefore,  the
said goods were not capital goods as claimed by the appellant.  It was  also
the case of the department that the said goods  had  been  exported  by  the
appellant along with parts of machinery manufactured by the appellant  in  a
container and the said parts i.e. the parts purchased by the  appellant  had
been exported in the same condition i.e. even without opening  the  packages
or testing them.  Thus, the role of the appellant was merely like  a  trader
who had purchased certain goods including parts of  machinery,  cables  etc.
from dealers in our country and thereafter exported the same  in  the  exact
condition in special containers along with  the  machinery  manufactured  by
it.

8.    The department was also of the view that the parts of machinery  which
had been exported by the appellant  could  not  have  been  said  to  be  in
Completely Knocked Down condition because  the  parts  manufactured  by  the
appellant and the parts purchased by the appellant  from  other  dealers  in
the country had never been assembled in the  appellant’s  factory  and  they
were exported in the same condition as stated hereinabove and  it  was  also
pertinent to note that the parts so purchased were packed in such a  way  so
as to keep the parts in good condition even after  it  is  transported  from
India to Vietnam by sea.

9.    The department was also of the view that the  parts  so  purchased  by
the appellant could not have been treated  even  as  ‘inputs’  as  the  said
parts had not been used by the appellant in  the  process  of  manufacturing
the machinery.  The appeals were heard  by  the  CEGAT  and  ultimately  the
CEGAT allowed the appeals by remanding the cases to the  original  authority
for computing and confirming the amount of  the  MODVAT  credit  irregularly
availed by the appellant and also  for  imposition  of  appropriate  penalty
after affording  effective  opportunity  of  hearing  to  the  appellant  in
accordance with law.

10.   Being aggrieved by the afore-stated orders  passed  by  the  CEGAT  in
Final Order Nos. 301 & 302 of 2003, the present appeals have been  filed  by
the appellant.

11.   The learned senior counsel appearing for the appellant  had  submitted
that the impugned orders passed by the CEGAT are bad in  law  as  the  CEGAT
did not appreciate the facts and law correctly.

12.   He had submitted that the MODVAT credit availed by the  appellant  was
just and proper and therefore, there was no question  of  re-calculating  or
recovering the amount of the MODVAT credit availed by the appellant.

13.   He thereafter submitted that upon correct interpretation of  Rule  57Q
read with Rule 57A of the Rules, the goods in respect of  which  the  MODVAT
credit was availed by the appellant were ‘capital goods’.   The  reason  for
making such a submission was that the appellant was to set up a sugar  plant
at Vietnam and for that purpose parts of machinery including electric  cable
etc. were purchased by the appellant  and  along  with  parts  of  machinery
manufactured by the appellant, the parts so purchased by the  appellant  had
been put in one container which had been then transported to Vietnam by  sea
so as to enable the appellant to set up a sugar plant there.

14.   He had further submitted that the  parts  of  machinery  so  purchased
were to form part of the entire plant, which was set up by the appellant  at
Vietnam and therefore, it was to be treated as inputs  or  part  of  capital
goods and therefore, the appellant  had  rightly  claimed  and  availed  the
MODVAT credit.

15.   He had further submitted that the entire sugar machinery plant was  to
be sent to Vietnam in Completely Knocked Down condition.  After  receipt  of
the complete  machinery  in  Vietnam,  the  plant  was  to  be  set  up  and
therefore, even the machinery which had  been  purchased  by  the  appellant
from other manufacturers or  dealers  and  which  had  been  transported  to
Vietnam by sea was  part  of  the  inputs.   In  the  circumstance,  without
considering whether the plant set up in Vietnam was  movable  or  immovable,
the respondent authorities ought to have given the  benefit  of  the  MODVAT
credit to the appellant.

16.   According to the learned counsel for the appellant,  the  whole  sugar
machinery was cleared from  the  factory  in  unassembled  or  dis-assembled
condition.  In view thereof, it was not open to the  respondent  Authorities
to contend  that  parts  of  machinery  which  had  been  purchased  by  the
appellant from other manufacturers would not form part of the inputs.

17.   To  substantiate  his  submissions,  the  learned  counsel  had  cited
several judgments.
18.   The learned Additional Solicitor General  appearing  for  the  Revenue
had repeated all submissions made before the Tribunal and  therefore,  I  do
not repeat the same here.

19.   Upon hearing the learned counsel appearing for  both  sides  and  upon
perusal of the relevant facts and legal position, we are of  the  view  that
the Tribunal had rightly come to the conclusion that the appellant  was  not
entitled to the MODVAT credit as prayed for.

20.   We find much substance in what  has  been  observed  by  the  Tribunal
while coming to the conclusion that the MODVAT credit could  not  have  been
granted to the appellant.

21.   It is pertinent to note that  the  most  important  object  concerning
grant of the MODVAT credit is to see  that  cascading  effect  of  the  duty
imposed on the final product cleared at the time of  sale  is  removed.   If
some duty is levied on the inputs, raw  materials  etc.  and  if  the  final
product is also dutiable, then the duty levied on inputs i.e. raw  materials
is to be reduced from the duty ascertained  on  the  final  product.   Thus,
there are two conditions for getting the MODVAT credit benefit:
              i) On the raw materials i.e. on the inputs,  the  manufacturer
                 must have paid duty and such raw material  must  have  been
                 used in the process of manufacturing the final  product  in
                 his factory or premises.


             ii) Excise duty must have been levied on the final product.  If
                 there is no duty levied on the final product,  there  would
                 not be any question of grant of any relief because in  that
                 case there would not be any cascading effect  on  the  duty
                 imposed.


22.   Looking at the above stated clear legal position,  one  may  see  here
that no duty was paid by the appellant on the  final  product  i.e.  on  the
sugar plant which had been set up  in  Vietnam.   For  time  being,  let  us
forget the fact whether the  plant  is  movable  or  immovable  –  the  fact
remains that no duty was paid on the said plant and therefore,  there  would
not be any question with regard to getting credit on the duty  paid  on  the
inputs,  especially  when  the  appellant  had  not   used   the   machinery
manufactured  by  other  manufacturers  in  its   factory   premises   while
manufacturing machinery which had  been  transported  along  with  machinery
manufactured by the appellant in a common container which had been  sent  to
Vietnam by sea.

23.   In our opinion, the  above  stated  reason  is  quite  sufficient  for
denying any MODVAT credit to the appellant. While  dealing  with  a  similar
issue, this Court had observed in para no.15 of the  judgment  delivered  in
the case of Madras Cements Ltd. v. CCE, 2010 (6) SCC 606 as under:

      “15.  In order to avail of MODVAT/CENVAT credit, an  assessee  has  to
      satisfy the assessing authorities that the capital goods in  the  form
      of components, spares and accessories had  been  utilized  during  the
      process of manufacture of the finished product.  Admittedly,  in  this
      case the appellant was not able to identify the  machinery  for  which
      the goods  in  question  had  been  used.   In  the  absence  of  such
      identification, it was not possible for the assessing  authorities  to
      come to a decision as to whether  MODVAT  credit  would  be  given  in
      respect of the goods in question.”




      Looking to the above legal position, in our view, the impugned  orders
passed by the Tribunal cannot be said to be incorrect.


24.   It is also not in  dispute  that  the  appellant  had  purchased  some
machinery from others and such machinery had not even been  unpacked  by  it
and in the exact condition it had been transported along with the  machinery
manufactured by it  to  Vietnam.   Thus,  the  appellant  did  not  use  the
purchased machinery in  its  premises  or  in  its  factory  and  therefore,
necessary condition incorporated in the Rules for  availing  credit  of  the
MODVAT had not been complied with. To avail the MODVAT credit, the input  on
which excise duty is paid must be used  in  the  manufacture  of  the  final
product in the factory of the assessee.   The  machinery  purchased  by  the
appellant had not even been tested or was not even unwrapped in the  factory
of the appellant.  In case of such an admitted fact, it cannot be said  that
the machinery so purchased from others was used  by  the  appellant  in  the
manufacture of the sugar plant.

25.   In the instant case, the appellant had only acted as a  trader  or  as
an exporter in relation to the machinery purchased by  it,  which  had  been
exported and used for setting up a sugar plant in  a  foreign  country.   In
any case, it cannot be said to have manufactured that plant in its  factory.



26.   Moreover, it is also clear that the  appellant-assessee  did  not  pay
any excise duty on the sugar plant set up by it in  Vietnam  and  therefore,
there cannot be any question of availing any MODVAT credit.

27.   For the aforestated reasons as well as for the reasons stated  by  the
Tribunal in the impugned order, we are of the view  that  the  Tribunal  had
come to a correct conclusion  and  the  conclusion  so  arrived  at  by  the
Tribunal does not require any interference.

28.   The appeals are, therefore, dismissed with no order as to costs.




........................................J.
                                                         (H.L. DATTU)



                                       .....................................
                                       ...J.
                                                         (ANIL R. DAVE)

New Delhi
September 03, 2013
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