CX - MODVAT - 'Synthetic Filter Cloth' and 'Asbestos Mill Board' cannot be treated as 'inputs' as both items were part and parcel of machine & plant used for processing of goods and were excluded under Explanation to Rule 57A: HC
By TIOL News Service
ALLAHABAD, SEPT 23, 2015: REVENUE is in appeal before the Allahabad High Court.
The respondent assessee is engaged in manufacture of aluminium and other connected products and availed MODVAT credit in respect to ‘Synthetic Filter Cloth' and ‘Asbestos Mill Board' treating the same to constitute inputs used in or in relation to manufacture of their final products.
A declaration under Rule 57-G was made by the assessee wherein Synthetic Filter Cloth was declared as input & its nature/function was described as fabrication of process liquor. With regard to Asbestos Mill Board, its nature/function was described as Furnace/ Pot insulation.
Revenue took a view that these items are a part of plant and machinery, equipment & not liable to be treated as "inputs" in terms of Rule 57A of CER, 1944 & since the assessee suppressed the functionality of aforesaid items the irregularly availed MODVAT credit of Rs.1,02,582.97 during the period of July 1989 to January 1991 is recoverable.
Rule 57A of CER, 1944, as it stood at the relevant time is extracted below -
Explanation:- For the purposes of this rule, "inputs includes-
(a) inputs which are manufactured and used within the factory of production in, or in relation to, the manufacture or final products, and
(b) paints and packaging materials,
but does not include-
(i) machines, machinery, plant, equipment, apparatus, toots or appliances used for producing or processing of any goods or for bringing about any change in any substance in or in relation to the manufacture of the final products;
The Collector, Central Excise, Allahabad issued a SCN on 09.06.1992 proposing to disallow the credit and also impose penalties.
An o-in-o came to be passed on 16.3.1993/23.3.1993. The adjudicating authority held that "inputs" would mean something in the nature of raw material, component etc. out of which the final product is manufactured and which forms part of final product in some form or which is used in the process of manufacture in such a way that without it final product cannot be manufactured in the form it is removed; that the "Synthetic Filter Cloth" and "Asbestos Mill Board" did not satisfy aforesaid requirement so as to qualify to be inputs entitling MODVAT Credit to the assessee. In fine, he disallowed the credit and imposed penalty of Rs.10,000/- on the assessee.
The Tribunal allowed the appeal of the assessee vide order dated 24.6.1997.
And, since the department was aggrieved by this order, they are before the High Court.
The High Court extracted rule 57A of the CER, 1944 and inter alia observed -
+ Provisions of Statute must be construed strictly and the Court neither should stretch the words nor add nor subtract words in order to bring in or include something therein. [Saraswati Sugar Mills Vs. Commissioner of Central Excise, Delhi 2011-TIOL-73-SC-CX refers]
+ From the own claim of Assessee, it is clear that both the items were part and parcel of machines, plants, equipment etc. used for producing and processing of goods, hence, were excluded specifically under Rule 57A, Explanation which excludes "machines, machinery, plant, equipment, apparatus, toots or appliances used for producing or processing of any goods or for bringing about any change in any substance in or in relation to the manufacture of the final products".
+ In view of specific exclusion, we are clearly of the view that Assessee was not entitled to claim MODVAT Credit on 'Synthetic Filter Cloth' and 'Asbestos Mill Board' treating the same to be "inputs" under Rule 57A of Rules, 1944. The Tribunal taking otherwise view has clearly erred in law.
The question of law was answered in favour of revenue.
(See 2015-TIOL-2218-HC-ALL-CX)
