IMPORTANT POINT
Whether an item falls within the purview of “capital goods” would depend upon the user it is put to.

JUDGMENT

D.K. Jain, J. —

1.Challenge in this appeal, by special leave, is to the order dated 11th June, 2002 passed by the Customs, Excise and Gold (Control) Appellate Tribunal (for short “the Tribunal”), as it existed then, in Appeal No.E/725/2001-NB(SM). By the impugned order, the Tribunal has held that the respondent (for short “the assessee”) is entitled to avail of MODVAT credit in respect of steel plates and M.S. channels used in the fabrication of chimney for the diesel generating set, by treating these items as capital goods in terms of Rule 57Q of the Central Excise Rules, 1944 (for short “the Rules”).

2.Briefly stated, the material facts, giving rise to the present appeal, are as follows:

The assessee is a public limited company engaged in the manufacture of yarn. They availed MODVAT credit on “capital goods” described in the Table given below Rule 57Q in respect of steel plates and M.S. channels used by them for erection of chimney for the diesel generating set, falling under Chapter 85 of the Central Excise Tariff Act, 1985 (for short “the Tariff Act”).

3.A show cause notice, dated 20th August 1999, was issued to the assessee, alleging therein that MODVAT credit availed of on steel plates and M.S. channels used in the fabrication of chimney, was inadmissible as the subject items were not “capital goods”, as described in the said Table. Therefore, MODVAT credit had been wrongly availed of by the assessee. In reply to the show cause notice, the assessee pleaded that the items in question being components of chimney which in turn was an accessory of the diesel generating set, falling under heading 85.02, they also qualify the test of “capital goods” specified against serial No.5 of the Table, and therefore, MODVAT credit in respect of the said items was clearly admissible. It was asserted that chimney was a vital part of the generating set for discharge of gases arising out of burnt fuel, mandatory under the Pollution Control laws.

4.The Assistant Commissioner was of the view that since steel plates and M.S. channels were not used as input in the manufacture of final product, these could not be covered under any of the chapter headings in the Table under Rule 57Q, MODVAT credit on the said items was inadmissible. He, accordingly, disallowed the MODVAT credit amounting to Rs.1,16,650/- availed of by the assessee and imposed a penalty of Rs.2000/-. Being aggrieved, the assessee filed an appeal before the Commissioner (Appeals) but without any success on the question of MODVAT credit. The Commissioner (Appeals), however, deleted the penalty levied on the assessee. The assessee took the matter further in appeal to the Tribunal. The Tribunal has come to the conclusion that since the chimney is used as an accessory to the diesel generating set, and steel plates and M.S. channels were used in the fabrication of chimney these items also fall within the ambit of serial No.5 of the said Table and therefore, MODVAT credit on these items could not be denied. Not being satisfied with the order of the Tribunal, the Revenue is before us in this appeal.

5.Mr. Harish Chandra, learned Senior Counsel appearing for the Revenue submitted that the Tribunal has failed to appreciate that “capital goods” as described in the Table under Rule 57Q would include only those goods which are specified against serial Nos.1 to 4 of the said Table and, thus, the “capital goods” in the present context cover only the diesel generating set and its components, spares and accessories and not steel plates or M.S. channels, which are independently classifiable under Chapter Sub-heading 7208.11 and 7216.10 respectively. It was argued that both the subject items were not used as input in manufacture of final product so as to make them eligible for MODVAT credit in terms of serial No.5 of the said Table. Learned counsel thus, urged that the order of the Tribunal deserves to be set aside.

6.Per contra, Mr. B.L. Narsimhan, learned counsel appearing on behalf of the asse