REPORTABLE

IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 5295 OF 2003

Saraswati Sugar Mills                   …..….. Appellant

versus

Commissioner of Central Excise, Delhi-III                ………Respondent  

J U D G M E N T

H. L. DATTU, J.

1. This  appeal  is  directed  against  the  final  Order  of  the  Customs  

Excise  and  Gold  (Control)  Appellate  Tribunal,  New  Delhi  

[hereinafter referred to as `the Tribunal’] dated 10.12.2002.  By the  

impugned order, the Tribunal has confirmed the order passed by  

the Commissioner of Central Excise (Appeals), which has affirmed  

the order of the Assistant Commissioner of Central Excise, levying  

the  duty  and  penalty  under  the  Central  Excise  Act,  1944  

(hereinafter referred to as ‘the Act’).

THE ISSUE :  

2. The  bone  of  contention  between  the  Appellant-assessee  

[hereinafter  referred  to  as  ‘the  assessee’]  and  the  Respondent  

[hereinafter referred to as ‘the Revenue’] can be crystallized thus:  

Whether  the  Iron  and  Steel  structures  manufactured  and  used  

captively in the factory for installation of the Sugar manufacturing  

plant by the assessee can be classified as capital goods under Rule  

57Q of the Central Excise Rules, 1944 [hereinafter referred to as  

“the Rules”].  

THE FACTS :

3. The relevant facts for the purpose of this appeal are:- The assessee  

is the manufacturer of Sugar and Molasses. The assessee is availing  

MODVAT credit  facility on the excise duty paid for the capital  

goods used in the factory for manufacturing process under Rule  

57Q  of  the  Rules.  In  April  1999,  the  assessee,  in  order  to  

modernize the manufacturing process of sugar and molassess, has  

installed  new  machineries  by  replacing  the  old  one.  However,  

certain  machineries  like  cane  milling  plant,  clarification  plant,  

evaporator  and  pan  boiling  plant,  power  generation  plant  etc.,  

which are specified as capital goods in terms of Serial Nos. 2 and 3  

of the Table below Sub-Rule 1 of Rule 57Q of the Rules, required  

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the support of structural items for their installation. In view of this,  

the assessee started the manufacturing of iron and steel structures,  

after purchasing excise duty paid iron and steel sheets, angles, nuts  

and  bolts  etc.  for  the  installation  of  the  said  machineries.  

Thereafter, the assessee has filed a declaration under Rule 57Q of  

the  Rules  declaring  Iron and Steel  structures  under  sub-heading  

7308.90 of Chapter 73 as capital goods.  The assessee has also filed  

classification  declaration  under  Rule  173B  of  the  Rules  dated  

09.07.1999 for the  Iron and Steel  structures  classifying it  under  

sub-heading 7308.90 of Chapter 73 and claiming exemption under  

the  Notification  No.  67/95-CE  dated  16.03.1995  [hereinafter  

referred to as “Notification”].  The said Notification exempts the  

capital goods, as defined in Rule 57Q of the Rules, manufactured  

and used within the factory from the excise duty leviable on such  

goods as specified in the schedule to the Central Excise Tariff Act,  

1985 [hereinafter referred to as “the Tariff Act”].  Subsequently,  

the Assistant Commissioner, Central Excise Division, Ambala vide  

Office letter dated 20.01.2000 has issued a Show Cause Notice to  

the  assessee  for  short  payment  of  excise  duty  to  the  tune  of  `  

28,14,464/-  for  the  period   July,  1999  to  September,  1999  as  

Notification is not applicable to the iron and steel structures.  The  

said Show Cause Notice was replied by the assessee vide its reply  

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dated 24.02.2000 claiming the benefit of Exemption Notification.  

The assessee has also produced various photographs, drawings and  

Certificate of the Chartered Engineers during the personal hearing  

before the Assistant  Commissioner dated 21.03.2000 in order  to  

show  that  the  iron  and  steel  structures  are  components  of  

machinery  and  quintessential  for  its  effective  functioning.  

However,  the  Assistant  Commissioner,  vide its  order  dated  

31.03.2000, confirmed the duty demand and imposed a penalty of `  

5,00,000/- on the ground that the Notification is not applicable to  

the said Iron and Steel structures as they are neither inputs used in  

relation to the manufacture of final product nor capital goods as  

defined in Column 2 of  the Table given below Sub-Rule  (1)  of  

Rule 57Q of the Rules.  The assessee, aggrieved by the order of  

Assistant  Commissioner,  preferred  an  appeal  before  the  

Commissioner  of  Central  Excise  (Appeals).  The  Commissioner  

(Appeals), vide its order dated 23.11.2011, confirmed the order of  

the Assistant Commissioner and rejected the appeal on the ground  

that the said Iron and Steel structures form the part of the building.  

Being  aggrieved,  the  assessee  preferred  an  appeal  before  the  

Tribunal,  the  same  was  partly  allowed.   The  Tribunal,  vide  its  

impugned order dated 10.12.2002, reduced the amount of penalty  

to `1,00,000/- and affirmed the demand of duty on the ground that  

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Chapter 73 of Schedule to the Tariff, Act under which the said Iron  

and Steel structures fall, has not been specified in the Table below  

Rule  57Q  of  the  Rules  and  the  machineries  purchased  by  the  

assessee were complete in itself.  The reasoning of the Tribunal is  

as under:

“We have considered the submission of both the sides.   The Ld. Advocate had shown us certain photographs  where the impugned structures were used.  According  to  him  these  structures  form  integral  part  of  the   machinery  concerned  without  which  the  machinery   cannot function.   On query from the Bench, the Ld.   Advocate  has  fairly  conceded  that  the  various  machineries,  which  have  been  purchased  by  them,   were  complete.   Accordingly,  we  do  not  find  any  substance in his submissions that these structures are   components  of  the  various  machine/machineries.   Notification  No.67/95-CE  provides  exemption  from  payment  of  duty  to  the  capital  goods as defined in   Rule 57Q if they are used in or in relation to the final   products  which  are  chargeable  to  duty.   The   appellants have not succeeded in establishing that the   impugned  structures  are  components  of  the  capital   goods as specified in the table below Rule 57Q of the   Central  Excise  Rules.   Chapter  73  of  the  Central   Excise  Tariff  under  which  the  impugned goods  fall   has also not been specified in the table below Rule  57Q.  The ratio of the decision in the case of Bhanu   Steels is not applicable as therein the appellants had   explained that the goods were spare parts for  plant   and  machinery  installed  in  their  factory.   In  the   present  matter,  the appellants  have not  proved that   the  impugned  goods  are  components  of  the   machines/machineries.   The ratio of the decision in   the case of Wainganga is not applicable as the goods  were manufactured in the factory and further these   were not trusses, column and purlines as was the fact   in the Wainganga case.  We, therefore, hold that the   

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benefit of Notification No.67/95 is not available to the   appellants.   Accordingly,  we uphold the  demand of   duty  of  Excise  confirmed  against  them.   However,   taking into consideration the facts and circumstances   of  the  case,  we  are  of  the  view  that  the  penalty   imposed  is  on  the  higher  side  and  the  interest  of   justice will be met, if the Appellants are directed to  pay  a  penalty  of  only  Rs.1  lakh.   We  order   accordingly.  The appeal is thus partly allowed.”

THE COMPETING ARGUMENTS :  

4. The learned counsel Shri. V. Lakshmi Kumaran submits that the  

Iron and Steel structures are fabricated by the assessee in its factory  

and  subsequently,  used  within  the  factory  for  installation  and  

effective  functioning  of  the  sugar  manufacturing  machineries  

which falls under Serial NoS. 2 and 3 of the Table to Rule 57Q as  

capital goods. The said Iron and Steel structures are in the nature of  

components of the sugar manufacturing plant.  Therefore, the said  

structures are capital goods in terms of Serial no. 5 of the Rule 57Q  

of the Rules. He further submits that the Tribunal has grossly erred  

in observing that Chapter 73 of Schedule to the Tariff Act, under  

which the said Iron and Steel structures fall, has not been specified  

in  the  table  below Rule  57Q of  the  Rules.   In  this  regard,  he  

contends that so long as the Iron and Steel Structures are used as  

component  or  accessory  of  the  eligible  machines  falling  under  

Serial No. 2 and 3, irrespective of its classification under the Tariff  

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Act, it would be treated as capital goods as covered by Serial No. 5  

of  the  table  below Rule  57Q.  In  support  of  this  argument,  the  

learned counsel, placing reliance on the Circular dated 02.12.1996,  

issued  by  Central  Board  of  Excise  and  Customs  [hereinafter  

referred to as “the CBEC”], submits that the components, spares  

and accessories to the eligible capital goods under Rule 57Q have  

been specified as capital goods on the basis of their description,  

instead of classification under the Tariff Act. He further submits  

that the said Iron and Steel structures, once used for the installation  

of  various  machineries,  become  part  and  parcel  of  the  sugar  

manufacturing plant  and without  the help of  said  structures,  the  

machineries  cannot  be  installed  and  made  functional.  In  other  

words, the said structures are also in the nature of components to  

the sugar manufacturing plant. He also submits, by placing reliance  

on  Section  Note  5  to  Section  XVI  of  the  Tariff  Act,  that  the  

expression  ‘machine’  has  to  be  construed  as  plant  and  any  

component of  the machine,  being part  of the machine,  will  also  

become part  of the plant.   He further submits that this Court in  

Commissioner of Central Excise, Jaipur v. Rajasthan Spinning and   

Weaving Mills Ltd., 2010 (255) E.L.T. 481 (SC) held that the steel  

plates  and  M.S.  Channels,  used  in  the  fabrication  of  chimney,  

which is integral part of the diesel generating set, are capital goods  

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in terms of Serial No. 5 of the Table below Rule 57Q the Rules. In  

other  words,  the  individual  items  used  for  fabricating  the  

component of the eligible capital goods under Serial Nos. 2 and 3,  

are qualified as capital goods in terms of  Serial No. 5 of the Table  

below  Rule  57Q  of  the  Rules.  The  learned  counsel,  citing  the  

decision  of  the  Tribunal  in  Simbhaoli  Sugar  Mills  Ltd.  V.   

Commissioner  of  Central, 2001  (135)  E.L.T.  1239  (Tri.-Del),  

submits  that  the  said  decision  deals  with  exactly  the  same  

Structural Items, under Chapter heading 73.08, which are in issue  

before this Court and used for installation of Sugar Manufacturing  

Plant.  He further  submits  that  on issue of  whether  the Iron and  

Steel items fabricated at site for raising the structure to support the  

sugar manufacturing plant are capital goods or not under Rule 57Q,  

the Tribunal answered that items used for fabricating the structures,  

which are in the nature of components or part of the machines, are  

also capital goods in terms of Rule 57Q and allowed MODVAT  

credit on the said items.  He further submits that the Special Leave  

Petition  against  this  decision  of  Tribunal,  preferred  by  the  

Revenue, has been dismissed by this Court.  Drawing strength from  

the  above decisions  of  this  Court  and the  Tribunal,  the  learned  

counsel submits that the assessee is better placed as the iron and  

steel structures in issue form the integral and quintessential part of  

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the  Sugar  manufacturing  Plant  and  the  whole  machinery  is  so  

designed that without the said Iron and Steel structures, the sugar  

plant  cannot  function.  He  further  submits  that  when  individual  

items  used  for  fabricating  the  structures  in  the  nature  of  

components to support the machinery are treated as capital goods  

in  terms of  Rule  57Q,  then  it  will  be  against  logic  to  say  that  

structures  are  not  components  of  the  machines.  The  learned  

counsel submits, by referring to a circular dated 05.08.1997 issued  

by the CBEC, that in case of a Wind Mill, the tower acting as a  

structure  to  support  the  Wind  Mill  constitutes  an  essential  

component of the Wind Mill.  Therefore, the support tower can be  

treated as capital goods and the assessee can claim exemption, if  

provided.  Drawing an analogy from the example of Wind Mill, the  

learned counsel submits that the Iron and Steel structures are the  

components or parts of the Sugar manufacturing plant and qualify  

as capital goods in terms of Serial No. 5 of the Table below Rule  

57Q of the Rules.  Arguendo, the learned counsel submits that the  

Iron and Steel structures are fabricated at the site of work for use in  

the construction or erection of the various machineries, therefore,  

can be classified under sub-heading 7308.50 under Chapter 73 of  

the  Schedule  to  the  Tariff  Act  which  attracts  Nil  rate  of  duty.  

Alternatively, the learned counsel submits, by placing reliance on  

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the judgment of this Court in  Commissioner of Central Excise v.   

Wainganga Sahkari S. Karkhana Ltd.,  2002 (142) ELT 12 (SC),  

that no excise duty is payable on structural items fabricated at site  

and used within the site.

5. Per  contra,  Shri.  K.  Swami,  learned  counsel  for  the  Revenue,  

supports the findings and conclusion reached by the Tribunal and  

the  department.   He  further  submits  that  the  Iron  and  Steel  

structures which fall under Chapter Heading 73 of the Schedule to  

the Tariff Act, is neither mentioned in the Notification nor in the  

Table below Rule 57Q of the Rules. According to learned counsel,  

the  Exemption  Notification  only  exempts  the  capital  goods  as  

defined in Rule 57Q of the Rules.  The learned counsel also argues  

that by applying “user test” theory, the Iron and Steel structures  

cannot be considered as components  of the sugar manufacturing  

plant.   It  is  also  submitted  that  the  Notification  requires  to  be  

strictly construed and since the assessee does not fall  within the  

ambit of the Notification, it  is not entitled for the benefit  of the  

Notification.

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THE NOTIFICATION :

6. To  resolve  the  controversy,  we  need  to  notice  the  relevant  

Notification and Rule 57Q of the Rules.  The relevant portion of  

Notification No.67/95-CE dated 16.03.1995 is as under:-

“In  exercise  of  the  powers  conferred  by  sub- section (1) of Section 5A of the Central Excise Act,   1944...  the  Central  Government  being  satisfied   that it is necessary in the public interest so to do  hereby exempts   

(i)  capital  goods  as  defined  in  Rule  57Q of  the   Central  Excise  Rules  1944  manufactured  in  a   factory and used within the factory of production;  

(ii) ...

from  the  whole  of  the  duty  of  excise  leviable   thereon which is specified in the Schedule to the   Central Excise Tariff Act, 1985 (5 of 1986).”  

THE RULES :  

Rule 57Q of the Central Excise Rules, 1944 reads:-

“(1) All goods falling under heading Nos.82.02  to 82.11;

(2)  All goods falling under Chapter 84 (other than  internal  combustion  engines  falling  under  heading No.84.07 and 84.08 and of a kind used  in  motor  vehicles,  compressors  falling  under   heading  No.84.14   and  of  a  kind  used  in   refrigerating  and  air-conditioning  appliances  and  machinery,  heading  or  sub-heading  Nos.84.15,  85.18,  8422.10,  8424.10,  fire   extinguishers  falling  under  sub-heading  No.8424.80, 8424.91, 8424.99, 84.29 to 84.37,   8440,  84.50,  8452,  84.69  to  84.73,  84.76,   

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84.78,  expansion  valves  and  solenoid  valves   falling under sub-heading No.8481.10 of a kind   used  for  refrigerating  and  air-conditioning  appliances and machinery);

(3)  All  goods  falling   under  Chapter  85  (other   than those falling under heading Nos.85.09 to   85.13, 85.16 to 85.31 and 85.40);

(4)  All goods falling under heading Nos.90.11 to  90.13,  90.16,  90.17,  98.22  (other  than  for   medical use), 90.24 to 90.31 and 90.32 (other  than of a kind used for refrigeration and air- conditioning appliances and machinery);

(5)  Components,  spares  and  accessories  of  the   goods specified against S. Nos.1 to 4 above.”     

ANALYSIS OF THIS MATERIAL :

7. The Tariff Act prescribes the rate of duty for each chapter  

head  and  sub-head.   The  Tariff  Act  has  authorized  the  Central  

Govt.  to  modify  the  rates/duty  by  issuing  notifications.   Since  

exemption  notifications  are  issued  under  delegated  legislative  

power, they have full statutory force.  The Notification No.67/95-

CE dated 16.03.1995 specifically exempts capital goods as defined  

in Rule 57Q of the Rules.  The other condition that is envisaged in  

the Notification is that the ‘capital goods’ should be manufactured  

in a factory and used within the factory of production.  If these  

twin conditions are  satisfied,  the capital  goods are exempt  from  

payment of excise duty.  A party claiming exemption has to prove  

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that he/it is eligible for exemption contained in the notification.  An  

exemption notification has to be strictly construed.  The conditions  

for  taking  benefit  under  the  notification  are  also  to  be  strictly  

interpreted.  When the wordings of notification is clear, then the  

plain language of the notification must be given effect to.  By way  

of  an  interpretation  or  construction,  the  Court  cannot  add  or  

substitute any word while construing the notification either to grant  

or deny exemption.  The Courts are also not expected to stretch the  

words of notification or add or subtract words in order to grant or  

deny the benefit of exemption notification.  In Bombay Chemicals   

(P) Ltd. vs. CCE -  (1995)  Supp (2) SCC 646, a three Judge Bench  

of  this  Court  held  that  an  exemption  notification  should  be  

construed strictly, but once an article is found to satisfy the test by  

which it falls in the notification, then it cannot be excluded from it  

by construing such notification narrowly.   

8. Now  coming  to  Rule  57Q  of  the  Rules,  these  rules  are  

framed under the Statute.  While interpreting the Rules, which are  

framed  under  the  Statute,  they  should  be  read  as  a  part  of  the  

Statute itself and require to be interpreted as intra vires to the Act  

under which they have been issued.    

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Having said that,  now let  us consider the submission of learned  

counsel Shri Lakshmikumaran for the assessee who contends that  

Iron and Steel structurals manufactured by the assessee within its  

factory used for the purpose of installation of sugar manufacturing  

plant are components of the capital goods and therefore,  exempt  

from payment of excise duty by virtue of Notification No.67/1995-

CE dated 16.03.1995.  However, Shri Swami, learned counsel for  

the  Revenue contends  that  the  items in  dispute  are  independent  

goods manufactured by the assessee, though in its factory from the  

goods  on  which  excise  duty  is  paid  cannot  be  construed  as  

component parts of sugar manufacturing  plant and therefore, is not  

entitled  for  the  benefit  of  Notification  No.67/1995  dated  

16.03.1995.

9. As  per  Notification  No.67/1995  dated  16.03.1995,  capital  

goods  as  defined  in  Rule  57Q of  the  Rules  manufactured  in  a  

factory and used within the factory of production are exempt from  

payment of Excise Duty.  Rule 57Q of the Rules, specifies various  

items of goods falling under different chapter headings and sub-

headings of the Tariff Act as capital goods.  It is not the case of the  

assessee that Iron and Steel  Structures manufactured by it  in its  

factory are the goods which fall under Items 1 to 4 of Rule 57Q,  

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though sugar manufacturing unit would fall under Item Nos. 2 and  

3 of the Table to Rule 57Q of the Rules.  It is the specific stand of  

the assessee that the goods in dispute are components of the goods  

specified in Items 2 and 3 of the Table to Rule 57Q of the Rules  

and since the capital  goods include components and accessories,  

the Iron and Steel Structures manufactured within the factory are  

exempt from excise duty.

10. The expression “components” is not defined under the Act.  

Therefore, reference can be made to dictionaries to understand the  

meaning  of  the  expression  “components”.   In  Webster  

Comprehensive dictionary, it is defined as ‘Constituent part’.  In  

Oxford  Advanced Learner’s  Dictionary,  Volume 1,  International  

Edition,  the  word  “component”  means  a  ‘constituent  part’.  

Further,  ‘constituent’  means  ‘serving  to  form  or  compose  as  a  

necessary part’.  In Advanced Law Lexicon, 3rd Edition 2005, (by  

P.  Ramanatha  Aiyar),  the  word  ‘component  part’  is  defined  as  

‘something  which  becomes  an  integral  part  of  the  goods  in  

question by losing its physical and economic distinctiveness’.   It  

defines ‘constituent’ (of a component) as  ‘that helps make up or  

complete a unit or a whole’s one part of something that makes up a   

whole’.  Encyclopaedic Law Lexicon, Volume 2008-09 Edition, by  

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Justice C.K. Thakkar, describes the ‘components’ as : ‘It appears,  

therefore, that for an article to be called a component part, it is not  

necessary that even it becomes part of another article, it should still  

retain  its  identity.   All  that  is  necessary  to  make  an  article,  a  

component  part  is  that  it  goes  in  to  the  composition  of  another  

article.  If an article is an element in the composition of another  

article made out of it, such an article may well be described as a  

component part of another article.  It may be that the final product  

made  may  be  in  the  nature  of  a  compound  in  which  case,  the  

elements forming component parts may not be capable of any more  

separate identification.  Equally, it may be that when a machinery  

is  assembled out  of  several  parts  forming that  machinery,  those  

machinery,  those  parts,  even  after  there  being  filled  may  retain  

their individuality or identity’.   

11. The meaning of the expression ‘components’ as defined in  

the dictionary is accepted and adopted by this Court in the case of  

Star Paper Mills Vs. Collector of Central Excise (1989) 4 SCC 724  

and  the  same  is  quoted  with  approval  in  CCE  Vs.  Allied  Aid  

Conditioning Corporation 2006 (202) ELT 209 (SC).   

12. In  order  to  determine  whether  a  particular  article  is  a  

component part of another article, the correct test would be to look  

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both  at  the  article  which  is  said  to  be  component  part  and  the  

completed article and then come to a conclusion whether the first  

article is a component part of the whole or not.  One must first look  

at the article itself and consider what its uses are and whether its  

only use or its primary or ordinary use is as the component part of  

another article.  There cannot possibly be any serious dispute that  

in common parlance, components are items or parts which are used  

in the manufacture of the final product and without which, final  

product cannot be conceived of.   

13. The  meaning  of  the  expression  ‘component’  in  common  

parlance is that  ‘component part of an article is an integral part   

necessary to the constitution of the whole article and without it, the   

article will not be complete’.   

14. This Court, in Star Paper Mills (supra) has made a settled  

distinction  while  considering  whether  paper  cores  are  

‘components’ in the manufacture of paper rolls and manufacture of  

paper sheets.  It is stated that ‘paper cores’ are component parts in  

so far as manufacture of roll is concerned, but it is not ‘component  

part’  in  the  manufacture  of  sheets.   It  is  useful  to  quote  the  

observations made by this Court :-

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“... paper core would also be constituent part of   paper  and  would  thus  fall  within  the  term  "component parts" used in the Notification in so   far as manufacture of paper in rolls is concerned.   Paper core, however, cannot be said to be used in  the manufacture of paper in sheets as component   part. We are conscious that the relevant tariff item  uses the word "paper" but since paper in rolls and  paper in sheets are nothing but different forms of   paper, both of them would be excisable goods as  paper under the relevant tariff item.”

15. In Modi Rubber Ltd. v. Union of India, (1997) 7 SCC 13, the  

appellant  had  set  up  tyre  and  tube  manufacturing  plant  and  

imported various plants and machineries.  While using the plants  

and machineries, PPLF (Polypropylene Liner Fabric) was used as a  

device in the form of liner components to various machinery units  

to protect the rubber-coated tyre fabric from atmospheric moisture  

and dust. This Court held that the PPLF was not a component of  

the machine itself. It was not a constituent part. It was used as a  

Liner Fabric not only in tyre production but also in similar other  

industrial processes.  

16. In  Hindustan  Sanitaryware  &  Industries  Ltd.  &  Lakshmi   

Cement v. Collector of Customs, (2000) 10 SCC 224,  this Court  

while  drawing  a  distinction between component  and spare parts  

observed:

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“It  pertains  to  the  meaning  of  the  phrase  “component  parts”.  The  Tribunal,  in  the   impugned  order,  drew  a  distinction  between  component parts and spare parts, following its   earlier decision in the case of Vaz Forwarding  (P) Ltd. v.  Collector of Customs1.  Component  parts, according to it, were those which were  initially used in the assembly or manufacture  of a machine and spare parts were those parts   which  were  used  for  the  subsequent   replacement  therein  of  worn-out  parts. The  decision in Vaz Forwarding (P) Ltd.1 and other  decisions of the Tribunal were considered by a   larger Bench of  the Tribunal in  Jindal  Strips  Ltd. v.  Collector  of  Customs2.  The  larger  Bench took the view that a spare part  was a   replacement  part  to  replace  a  damaged  or  worn-out component but it was, nevertheless, a  component part.  “Component” was the genus  and “spare” was a species  thereof;  it  was a  component  which  was  used  for  replacement.   The  larger  Bench  judgment  found  that  the   distinction drawn in Vaz Forwarding (P) Ltd.1  was a distinction without a difference. 2. The  larger  Bench  decision  followed  decisions of this Court, and we are of the view   that  its  view is correct.  A spare part,  though  fitted  into  a  machine  subsequent  to  its   manufacture,  to  replace  a  defective  or  worn- out part becomes a component of the machine.   It is a component part.”

17. The issue for our consideration, as we have already noticed,  

is  whether  the  Iron  and Steel  Structures  are  components  of  the  

Capital Goods specified in the Table below Rule 57Q of the Rules.  

This  issue  can  be  resolved  by  looking  into  the  literature  which  

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gives some glimpse how sugar is manufactured in a sugar industry  

and what is the essential machinery for manufacture of sugar.   

18. The process of making sugar commences from the stage of  

collecting the harvest, cleansing and grinding, juicing, clarifying,  

evaporation,  crystallization,  refining  and  lastly  separation  and  

packing.  For the purpose of manufacturing cane sugar in a sugar  

industry,  the  essential  machineries  that  are  required  are  sugar  

presses,  diffusers,  vaccum pans,  evaporators  and sugar  handling  

equipments, crystallizers, sugar grader, elevator and cooling tower.  

We  can  call  these  machineries  as  essential  items  in  a  sugar  

manufacturing plant.  The assessee also fabricates Iron and Steel  

Structures for installation of the aforementioned equipments.  Even  

according  to  learned  senior  counsel  Sri  Lakshmikumaran,  these  

Iron  and  Steel  Structures  are  used  for  effective  functioning  of  

Sugar Manufacturing Plant.   Under the Notification,  the  Central  

Government had exempted duty in respect of “capital goods”, as  

defined in Rule 57 Q of the Rules if they are utilized in a place  

where such goods are manufactured and used within the factory of  

production.   The  Notification  specifically  states  that  what  is  

exempted under the Notification are “capital goods” as defined in  

Rule 57Q.  Rule 57Q specifies five categories of items as capital  

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goods.  It is not the case of the assessee or its learned counsel that  

the exemption claimed was on Items 1 to 4 of the Table to Rule  

57Q but as components which would fall under item No.5 of the  

Table to Rule 57Q.  Therefore, in order to get the benefit of non  

excise duty on Iron and Steel Structures, it had to be established by  

the  assessee  that  Iron  and  Steel  Structures  are  utilized  as  

component  parts  for  the  finished  products,  viz.  vacuum  pan,  

crystallizers, sugar grader, elevator, cooling tower etc.

OUR ANALYSIS AND CONCLUSION :  

19. It appears to us, in the light of the meaning of the expression  

‘component parts’ that the iron and steel structures are not essential  

requirements in the sugar manufacturing unit.  Anything required  

to make the goods a finished item can be described as component  

parts.  Iron and Steel structures would not go into the composition  

of vacuum pans, crystallizers etc.  If an article is an element in the  

composition of another article made out of it, such an article may  

be described as a component of another article.  Thus, structures in  

question do not satisfy description of ‘components’.  Therefore, in  

our opinion, the Tribunal was right in the view it took.

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20. Sri  V. Lakshmi Kumaran,  learned senior counsel,  submits  

that the Iron and Steel structures are fabricated at the site of the  

work for use in the construction of the various machineries and,  

therefore,  can  be  classified  under  sub-heading  7308.50  under  

Chapter 73 of the Schedule to the Act, which attracts nil rate of  

duty.  Therefore, it is contended that even if his other contention is  

not  accepted,  the assessee should not  be fastened with any duty  

liable under the Act.  This issue was neither raised nor canvassed  

by the assessee before the Tribunal.  Therefore, we cannot permit  

the learned counsel to argue this issue before us for the first time.  

Therefore, this contention of the learned counsel is rejected.   

21. Now coming to the last contention canvassed by the learned  

counsel that the Tribunal is not correct in holding that the assessee  

failed to establish that the steel structures are components of the  

capital  goods  as  specified  in  the  Table  below Rule  57Q of  the  

Rules  and,  therefore,  are  not  eligible  for  exemption  under  the  

notification.  This issue requires to be answered with reference to  

Circular  No.  276/110/96-TRV  dated  02.12.1996  issued  by  the  

CBEC.  The relevant portion of the Circular is as under :-

“3.The  matter  has  been  examined.  With  effect   from 23-7-1 996, capital goods eligible for credit   under  Rule  57Q have  been  specified  either  by   

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their  classification  or  by  their  description.   Clauses (a) to (c) of Explanation (1) of the said   rule  cover capital  goods by their  classification   whereas  clause  (d)  covers  goods  by  their   description  viz,  components,  spares  and  accessories of the said capital goods. It may be  noted  that  there  is  a  separate  entry  for   components,  spares  and  accessories  and  no  reference  has  been  made  about  their   classification. As such, scope of this entry is not   restricted  only  to  the  components,  spares  and  accessories falling under Chapters 82, 84, 85 or   90  but  covers  all  components,  spares  and  accessories of the specified goods irrespective of   their  classification.  The  same was  the  position   prior to amendment in Rule 57Q (i.e. prior to 23- 7-1996)  when  credit  was  available  on  components,  spares  and  accessories  of  the   specified  capital  goods  irrespective  of  their   classification. 4.  Accordingly,  it  is  clarified  that  all  parts,   components,  accessories,  which are to be used  with  capital  goods  of  clauses  (a)  to  (c)  of   Explanation  (1)  of  Rule  57Q  and  classifiable   under  any  chapter  heading  are  eligible  for   availment of Modvat credit.”        

22. The period in dispute is July 1999 to September 1999.  The  

Circular is dated 02.12.1996. Therefore, it  was applicable to the  

disputed period.  It is not disputed and it cannot be disputed that  

the Circular provides that all parts, components, accessories, which  

are  to  be  used  with  the  capital  goods  of  Clauses  (a)  to  (c)  of  

Explanation (1) of Rule 57Q and classifiable under any Chapter  

heading are eligible for availing of MODVAT Credit.  However,  

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while denying exemption under the notification, the Tribunal has  

concluded that the goods in question, which comes under Chapter  

Heading 73 of the Tariff Act has not been specified in the table  

below rule 57Q.  We do not find fault with the reasoning of the  

Tribunal, since the Circular, on which reliance is now placed by the  

learned  counsel,  was  not  produced  before  the  Tribunal  and,  

therefore, going by the language employed in Rule 57Q, there is  

justification  for  the  Tribunal  for  coming  to  the  aforesaid  

conclusion.  Since in view of the circular, which is now brought to  

our notice, the Tribunal was not correct to reject the claim of the  

assessee on the aforesaid ground.  However, this finding of ours  

will not assist the assessee, since we have held that Iron and Steel  

structures  are  not  the  components  of  machineries  used  in  the  

installation of Sugar Manufacturing Plant.     

23. Before  we  conclude,  we  must  further  observe  that  Shri  

Lakshmikumaran drew our attention to the judgment of this Court  

in CCE vs. Rajasthan Spinning and Weaving Mills Ltd. (2010) 255  

ELT  481  (SC)  where  the  appeal   preferred  by  the  Revenue  is  

dismissed.   The facts  in the said case were that  the respondent-

assessee  availed  MODVAT  credit  on  steel  plates  and  M.S.  

channels,  as  capital  goods  in  terms of  Serial  No.5 of  the  Table  

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given below Rule 57Q, used for erection of the chimney for the  

diesel  generating  set.    The  parties  were  ad  idem  that  diesel  

generating set falls under chapter heading 85 which is mentioned at  

Serial No.3 of the Table and also the chimney is an accessory in  

terms of Serial  No.5 of the Table given below 57Q.  The issue  

which was agitated before the Court was whether the Steel plates  

and MS Channels used in the fabrication of chimney are capital  

goods in terms of Serial No.5 of the Table below Rule 57Q.  This  

Court, whilst applying the user test, had held that the steel plates  

and MS Channels used in the fabrication of chimney are capital  

goods as contemplated by Rule 57Q as the chimney is not only an  

accessory but also an integral part of the diesel generating set in the  

light  of  the  Pollution  Control  laws  mandating  that  all  plants  

emitting effluents should be equipped with apparatus to reduce or  

get rid of effluent gases.  We are afraid that this decision would  

assist the appellants in support of the contention canvassed.  In this  

instant  case,  the Court  was considering whether steel  plates and  

M.S. Channels used in fabrication of chimney for diesel generating  

sets are entitled to avail of MODVAT credit by treating them as  

capital goods in terms of Rule 57Q of the Central Excise Rules.  

This Court,  applying ‘user test’,  has arrived at a conclusion that  

Steel  Plates  and  MS  Channels  are  used  in  the  fabrication  of  

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chimney  which  is  an  integral  part  of  the  diesel  generating  set.  

Therefore, the test applied by this Court is whether the items that  

were  at  issue were  integral  part  of  a  machinery.   If  that  test  is  

satisfied,  there will not be any difficulty to hold a particular item  

of the machinery is a component part and therefore, will fall within  

the ambit of the expression ‘capital goods’.

24. In  Simbhaoli Sugar Mills  Ltd. v. Commissioner of Central   

Excise, Meerut, 2001 (135) ELT 1239 (Tri-Del), the appellant is a  

manufacturer of sugar and availed a MODVAT credit on the joints,  

channels,  angles  and  MS Beams  used  in  fabricating  supporting  

structures  for  installation  of  equipments  such  as  vacuum  pan,  

crystallizers, sugar grader, elevator, etc., HR plates (black steel) are  

used in boiler of sugar plant to keep temperature high, MS bars,  

shapes and sections are used for erection of new cooling tower,  

chequred plates and ITR plates are used to construct the platforms,  

the  cane  carrier  chain  and  spares  are  used  to  transfer  the  raw  

material/semi processed material from stage to other, as the capital  

goods in the terms of Rule 57Q, treating these items as the parts  

and components of the plant.  The question which arose before the  

Tribunal  was  that  whether  these  items  used  for  fabricating  

structures to support and install various machineries of the sugar  

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plant are capital goods in terms of the Rule 57Q.  The Tribunal  

while allowing the MODVAT credit found that these items, except  

MS sections and shapes, used for raising structure to support the  

various  machines,  parts  of  machineries  of  the  plant  would  be  

covered by the explanation to Rule 57Q as a capital goods.  The  

Tribunal referred to its own decision in Malavika Steel Limited’s  

case and without semblance of any discussion, has partly allowed  

the assessee’s appeal. In view of our findings and the conclusion in  

the earlier part of the judgment, we cannot agree with the reasoning  

of the Tribunal.

25. In the result,  this appeal fails and, accordingly, dismissed.  

Costs are made easy.   

            ………………… ……J.

                                                                              [ D. K. JAIN ]

                                                                       ………………………J.                                                                                [ H. L. DATTU ] New Delhi, August 02, 2011.        

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