The liberal nature of the definition of 'Capital goods' as per Rule 57Q of the Central Excise Rules, 1944, and its applicability to the items in question, ultimately influenced the court's decision in favor of the respondent (assessee).

[Per: Hon. Prafulla C. Pant, J. (Oral)]

This appeal, preferred under Section 35-G of the Central Excise Act, 1944, is directed against the order dated 27.09.2005, passed by the Customs, Excise and Service Tax Appellate Tribunal, New Delhi (hereinafter referred as CESTAT) in Appeal No. E/2782/03 -NB(S), whereby the appeal of the revenue (present appellant) was partly allowed.

2. Heard learned counsel for the parties.

3. Brief facts of the case are that respondent M/s India Glycols Ltd. are manufacturer of Glycol and other industrial chemicals. During the period 1994-95 (upto Feb 1995) they availed Modvat credit to the tune of Rs. 14,73,523/- towards duty paid on various goods claimed to be covered within the ambit of 'capital goods'. A show cause notice dated 08.03.1995, disallowing said credit was issued under Rule 570 of the Central Excise Rules, 1944, by the department to the respondent (assessee), and after considering the reply of 2008(2) The Commissioner of Custom & Central Excise Vs. M/s India Glycols Ltd. 17 the assessee, the adjudicating authority vide its order dated 20th April 1999, allowed the credit to the tune of RS.6,91 ,952.92, whereas credit to the extent of Rs.7,54,842.98 was disallowed. On this respondent (assessee) preferred appeal against said order before the Commissioner (Appeals), Meerut. The item in respect of which the Commissioner (Appeals) allowed the Modvat credit included the items (i) Laboratory Homogenizes, Lab Scientific / Hospital Equipments (ii) Module of Chapter Heading No. 85.38 (iii) Gas Detection Systems of Chapter Heading No. 85.31 (iv) Lube / Sealant of Chapter heading No. 32.14 (v) Tower Packing of Chapter Heading No. 84.19 and (vi) Safety Tools of Chapter Heading No. 82.05. It appears that the definition of 'Capital goods' which was provided in original Rule 57Q of Central Excise Rules, 1944, was amended by the Notification No. 11 /95- CE(NT) dated 16.03.1995, whereby the clause (d) and clause (e) were inserted. Aggrieved by the order dated 30th June 2003, passed by Commissioner (Appeals), the Revenue (present appellant) appears to have preferred the Appeal No. E / 2782 -03/ NB(S) before the CES TAT, and after hearing the parties, the said appeal was disposed of vide impugned order dated 27.09.2005, whereby except for the safety tools (mentioned at SI. No. (vi) above with Heading No. 82.05), the exemptions allowed by the Commissioner (Appeals) in respect of the rest of the five items claimed under definition of 'Capital goods' were affirmed.

4. The question of law raised before this Court is whether, the CESTAT has erred in law in applying the Notification No. 11 /95 -CE(NT) dated 16.03.1995, retrospectively for the year 1994 -95, and in affirming the exemption granted by the Commissioner (Appeals) in respect of the laboratory homogenizes, lab scientific / hospital equipments; module of chapter heading No. 85.38; gas detection systems of chapter heading No. 85.31; lube / sealant of chapter heading No. 32.14; tower packing of chapter heading No. 84.19?

5. Mr. Arvind Vashistha, learned Standing Counsel for the appellant argued that the CESTAT has erred in law in affirming the exemption of the aforesaid items as 'Capital goods' for the period of 1994 -95 (upto Feb 1995) i.e. before the definition of 'Capital goods' was amended vide Notification No. 11 /95 -CE(NT) dated 16.03.1995.

6. Before further discussion, it is pertinent to mention here, the definition of 'capital goods' as it existed before 16.03.1995 in Rule 57Q of the Central Excise Rules, 1944. The same is reproduced, as under:

"57Q - Applicability:

Explanation - For the purposes of this section (1.) "Capital goods" means(a) machines, machinery, plant, equipment, apparatus, tools or appliances used for producing or processing of any goods or for bringing about any change in any substance for the manufacture of final products;

(b) components, spare parts and accessories of the aforesaid machines, machinery, plant, equipment, appa