REPORTABLE

IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO.2037 OF 2006

Madras Cements Ltd.  .. Appellant

Vs.

Commissioner of Central Excise .. Respondent WITH

CIVIL APPEAL NO.7443 OF 2008

J U D G M E N T

ALTAMAS KABIR, J.

1. The short point involved in these appeals is  

whether  the  Appellant/Assessee  is  eligible  for  

Modvat  Credit  on  certain  goods  for  the  period  

comprising November and December, 1999.

2. The  Appellant,  M/s  Madras  Cements  Ltd.,  

Alathiyur,  hereinafter  referred  to  as  ‘the  

Assessee’  is  the  holder  of  Central  Excise  

Registration No.1/Cement/97 and is engaged in the  

manufacture of cement and clinker coming within the  

ambit of Chapter 25 of the Central Excise Tariff  

Act, 1985, hereinafter referred to as ‘CETA, 1985’.  

3. The Revenue’s contention is that for the months  

of November and December, 1999, the Assessee had  

taken  Modvat  Credit  on  ineligible  capital  goods  

amounting to Rs.8,42,843/-.  The further contention  

of  the  Revenue  is  that  the  Assessee  was  not  

entitled to such credit, inasmuch as, it had taken  

Modvat Credit on items which did not come within  

the purview of capital goods under Rule 57Q of the  

Central Excise Rules, 1944, although it was claimed  

by  the  Assessee  that  the  said  items  comprised  

components,  spares  and  accessories  within  the  

meaning of Explanation 1(d) of Rule 57Q(1) relating  

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to capital goods. Accordingly, on 31st March, 2000,  

the Assessee was issued show cause notice no.11 of  

2000 asking it to show cause as to why the amount  

of  Modvat  Credit  of  Rs.8,42,843/-  should  not  be  

disallowed and recovered under Rule 57U(3) of the  

Central Excise Rules, 1944, and why interest at the  

rate of 20% per annum should not be demanded under  

Rule  57U  thereof,  if  the  Modvat  Credit  wrongly  

availed was not paid within three months from the  

date of receipt of the demand notice.  The Assessee  

was also asked to show cause as to why a penalty  

should not be imposed under Rule 173Q(b)(b) of the  

aforesaid Rules.  

4. Replying to the said show cause notice, the  

Assessee asserted that the inputs used in or in  

relation to the manufacture of the final products  

were eligible for Modvat Credit and that the ground  

plan  had  been  enclosed  with  the  application  for  

grant of registration certificate indicating that  

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the mines were also situated in the factory complex  

and were an integral part of the factory.  The  

Assessee  contended  that  parts  of  the  Bucket  

Elevator (8434.00) and Wagon Loaders (8431.00) were  

parts of machinery mentioned under serial nos.1 to  

4 of the Table under Rule 57Q(1) and were eligible  

for  Modvat  Credit  as  per  the  Board’s  Circular  

No.276/110/96 TRU.   

5. The show cause notice was adjudicated by the  

Assistant Commissioner of Excise on 4th June, 2003,  

and  by  his  order  No.22  of  2003,  the  Assistant  

Commissioner disallowed Modvat Credit amounting to  

Rs.4,31,749/-  with  regard  to  some  of  the  items.  

The Assistant Commissioner held that, inasmuch as,  

the mandatory requirement stipulated in serial no.5  

of the Table to Rule 57Q had not been complied  

with, he was not inclined to allow Modvat Credit in  

respect of the goods listed in serial nos.32 to 43  

of the annexure to the notice.  An appeal preferred  

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before the Commissioner (Appeals) against the order  

of the Assistant Commissioner was rejected on 16th  

October,  2003,  upon  holding  that  the  items  in  

question  were  not  capital  goods  and  were  not,  

therefore,  entitled  to  Modvat  Credit  admissible  

under Rule 57A as well. The Commissioner (Appeals)  

held  that  the  credit  was  not  admissible  on  the  

goods listed under serial nos.32 to 43 of the show  

cause notice.  

6. The matter was then taken in appeal before the  

Customs, Excise and Service Tax Appellate Tribunal,  

South  Zonal  Bench,  Chennai,  by  way  of  Appeal  

No.E/108/04/MAS on 20th January, 2004, which upheld  

the  order  of  the  Commissioner  (Appeals).  

Aggrieved  by  the  order  of  CESTAT,  the  Appellant  

filed the present Appeals before this Court.  

7. Appearing for the Appellant/Assessee, Mr. A.K.  

Ganguli,  learned  Senior  Advocate,  submitted  that  

the case of the Assessee was squarely covered by  

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the decision of this Court in  Jaypee Rewa Cement  

vs.  Commissioner of Central Excise [(2001) 8 SCC  

586], wherein explosives used for the extraction of  

limestone for manufacture of cement were held to  

fall  under  Chapter  36  of  the  Schedule  to  CETA,  

1985, and while cement comes under Chapter 25 and  

is a final product, explosives fall under Column 2  

and that the Assessee therein would be entitled to  

claim credit on the duty paid on explosives as they  

were used for the manufacture of the intermediate  

produce, namely, limestone which, in turn, was used  

in the manufacture of cement.    

8. Mr. Ganguli also submitted that the issues in  

the instant case stood settled by the larger Bench  

in  Vikram  Cement vs.  Commissioner  of  Central  

Excise, Indore [(2006) 2 SCC 351], to which the  

correctness  of  the  decision  in  the  case  of  

Commissioner  of  Central  Excise vs. J.K.  Udaipur  

Udyog Ltd. [(2004) 7 SCC 344] had been referred.  

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The  Three-Judge  Bench  went  on  to  hold  that  the  

Schemes of the Modvat and Cenvat were not different  

and that the conclusion of the Court in the  J.K.  

Udaipur Udyog Ltd.’s case (supra) that the decision  

in Jaypee Rewa Cement’s case (supra) would have no  

application to the case was not accepted on the  

ground  that  the  Cenvat  Rules  only  reflected  the  

Modvat Rules where the Rules had simply been re-

arranged.  Mr. Ganguli submitted that, inasmuch as,  

the items sought to be excluded by the Assistant  

Commissioner were components and accessories used  

in the mining process for manufacture of the final  

product, and were covered by Sub-heading No.84.31  

to  the  Table  annexed  to  Rule  57Q  after  its  

substitution  by  Notification  No.6/97-CE(NT)  dated  

1.3.1997,  as  subsequently  corrected  on  1.3.1997,  

10.3.1997  and  9.4.1997,  the  Assessee  would  be  

entitled to the benefits of Rule 57Q of the Central  

Excise Rules, 1944 and the impugned orders of the  

Revenue as well of the High Court were liable to be  

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quashed.  

9. On behalf of the Respondent, Commissioner of  

Central  Excise,  it  was  submitted  by  learned  

Additional Solicitor General, Mr. Gaurav Banerjee,  

that although the Assessee had claimed the benefit  

of the entry at serial No.5 of the Table annexed to  

Rule  57Q(1)  in  respect  of  the  capital  goods  

mentioned at serial nos.32 to 43, it had failed to  

specify  the  tariff  heading  under  which  their  

machinery/equipment, of which the subject capital  

goods  were  claimed  to  be  accessories  were  

classifiable,   nor  could  they  even  disclose  the  

identity  of  such  machinery  and  equipment  to  the  

authorities.  Mr. Banerjee also submitted that at  

no stage of the proceedings before the Tribunal or  

the High Court was any attempt made by the Assessee  

to identify the machinery in the absence whereof  

they would not be eligible for Modvat Credit.  It  

was urged that as had been held in the decision of  

this  Court  in  Vikram  Cement vs.  Commissioner  of  

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Central Excise, Indore [(2005) 7 SCC 74], in order  

to be eligible for Cenvat Credit on capital goods  

under the Cenvat Credit Rules, 2001 and 2002, which  

requires, inter alia, that such goods must be used  

in the factory for the manufacture of the final  

product. Accordingly, an item not satisfying the  

said  condition  could  not  be  brought  within  the  

scope  of  “capital  goods”  by  any  interpretive  

process,  whereby  claim  for  Cenvat  Credit  on  the  

capital  goods  in  question  could  be  entertained.  

Mr.  Banerjee  submitted  that  since  the  said  

decision, as also the decision in the case of J.K.  

Udaipur Udyog Ltd.’s case (supra), were available  

at the relevant time, the impugned decision arrived  

at  by  the  High  Court  could  not  be  assailed  on  

account  of  the  subsequent  decision  of  the  

Constitution  Bench  on  the  reference  made  with  

regard to the views expressed in J.K. Udaipur Udyog  

Ltd.’s case (supra).

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10. Mr. Banerjee urged that the impugned judgment  

of  the  Tribunal  ought  not,  therefore,  to  be  

interfered with and the appeals of Madras Cements  

Ltd.  were liable to be dismissed.

11. As  indicated  initially,  the  short  point  

involved  in  these  appeals  relates  to  the  

eligibility of the Assessee for Modvat Credit on  

certain capital goods which were said to have been  

used as components, spares and accessories in the  

manufacturing  process  of  the  Appellant  for  the  

period in question.

12. In order to avail of Modvat/Cenvat credit, an  

Assessee has to satisfy the Assessing Authorities  

that the capital goods in the form of component,  

spares and  accessories had been utilized during  

the process of manufacture of the finished product.  

13. Admittedly, in this case  the Appellant was not  

able to identify the machinery for which the goods  

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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.  There is no difficulty with  

regard  to  the  decisions  rendered  in  Jaypee  Rewa  

Cement’s  case  (supra)  or  the  Constitution  Bench  

judgment  in  Vikram  Cement’s  case  (supra).   The  

question  is  whether  the  Assessee  was  able  to  

specify to the Assessing Authorities that the goods  

in question had been used as components, spares and  

accessories  for  the  manufacture  of  the  finished  

product.  The same holds good in respect of Mr.  

Ganguli’s assertion that the goods in question were  

included under paragraph 84.31 of the Table set out  

in Rule 57Q of the Central Excise Rules, 1944.

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14. We are not, therefore, inclined to interfere  

with the orders of the Tribunal and the Appeals are  

accordingly, dismissed.

15. There will be no orders as to costs.

…………………………………………J. (ALTAMAS KABIR)

…………………………………………J. (CYRIAC JOSEPH)

New Delhi Dated: 6TH May, 2010.

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