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    NON-REPORTABLE

 IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL   APPEAL NOS.5509-5510 OF 2003   

M/S. KCP Ltd.          .....APPELLANT

        VERSUS

Commissioner of Central Excise, Chennai    ....RESPONDENT

J U D G M E N T

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.

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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  

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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.

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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.  

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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.

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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.

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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.

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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  

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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.   

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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  

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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.

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

                                                    ........................................J.

                             (ANIL R. DAVE) New Delhi September 03, 2013         

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