G.A. Brahma Deva, Member (J)

1. This is an appeal preferred against the impugned order dated 24-5-1988 passed by the Collector of Central Excise Customs, Pune.

2. The point to be considered in this case is whether gauges/templates (measuring instruments) lifting tackles, trolleys, conveyors, carrier (material handling equipments) manufactured by the appellants and utilised for captive consumption are eligible for exemption under Notification No. 217/86-C.E., dated 2-4-1986. This notification exempts "inputs" used in or in relation to the manufacture of goods notified under MODVAT. However, as per the proviso to the Notification it excludes from purview of said exemption apparatus, machinery, equipments etc. "used for" the manufacture of the goods. By the impugned order, the Collector held that items in question are excluded by the explanation and hence, they would not qualify for exemption. Hence this appeal.

3. Relevant Notification No. 217/86-C.E., dated 2-4-1986 reads as under:-

"Exemption to MODVAT items if used within the factory of production in the manufacture of finished goods.-

In exercise of the powers conferred by Sub-rule (1) of Rule 8 of the Central Excise Rules, 1944, The Central Government hereby exempts goods specified in column (2) of the Table hereto annexed (hereinafter referred to as 'input') manufactured in a factory and used within the factory of production, in or in relation to the manufacture of final products specified in column (3) of the said Table, 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):

Provided that nothing contained in this notification shall apply to inputs used in or in relation to the manufacture of final products which are exempt from the whole of duty of excise leviable thereon or is chargeable to nil rate of duty.

Explanation.- For the purposes of this notification, 'inputs' does not include;

(i) machines, machinery, plant, equipments apparatus, tools or appliances used for producing or processing of any goods or for bringing about any change in any substance in or in relation to the manufacture of the final products."

4. Arguing for the appellants Shri V. Laxmikumaran, learned Advocate, submitted that the items in question should come under the first part of the Notification to claim exemption and next it should be considered whether they come under the exclusion clause or not to deny benefit. He said that these measuring instruments and material handling equipments are covered by the main part of the Notification as they are inputs used in or in relation to the manufacture of the goods. He said that these are used within the factory of production in or in relation to the manufacture of final products and, as such, they are inputs as envisaged in first part of the Notification and relied upon the ratio of the decision of the Supreme Court in the case of M/s. J.K. Cotton Spinning and Weaving Mills Ltd., (MANU/SC/0269/1964 : AIR 1965 SC 1310). However, he contended that these are not used for manufacturing of the goods but only for measuring dimension or for transporting them from the place as the case may be and, as such, they do not come under the proviso to Notification to exclude these items and to deny benefit. He contended that it is not correct to say that machinery, equipments, apparatus etc. are ineligible for exemption merely because they are machines as it was held by the Collector but only machines which do take part in production are excluded in the exclusion clause. He said that various types of machineries, appliances viz., machines providing motive power like engines etc., machines made for transporting goods like Tractors, Trains, machines used for excavating, levelling, road laying etc., machineries meant for processing of goods like those used in the refineries, reacting tanks etc., machineries which alter the temperature like air conditioners, refrigerators etc., testing ma