PerGowri Shankar :

The common question in both these appeals by the Commissioner is the eligibility to credit in terms of Rule 57Q of the duty paid on the engine and alternators which together constitute a diesel generating sets.

2. Each of the respondent is engaged in the manufacture of rayon yarn and nylon yarn, tyre cord fabrics and similar products. Each of them entered into a contract for installation of a diesel generating set in its factory with the fabricator M/s. Modi Mirrless Blackstone Ltd., in the case of Century Rayon Ltd. and M/s. Wartsila NSD (India) Ltd. in the case of National Rayon Corporation Ltd. These fabricators entered into an arrangement with the manufacturer by which they sold the engine and alternator initially, and subsequently assembled these into a generating set in the factory.

3. The respondents took credit of the duty paid on the alternator and the engine under Rule 57Q. The department objected to by issue of notices. The notices were commonly worded, proposing to deny the credit on the ground that the components i.e. engine and alternator were exclusively used in the manufacture of final product, diesel generating set, exempted from payment of duty by the tariff, and on the further ground that the manufacturers of the set were some one other than the person took the credit. The adjudicating authority in each case conformed the proposal in the notice. On appeals from these orders, the Commissioner (Appeals), by two different orders but following the same reasoning held that credit was rightly taken. He essentially followed the ratio of an unreported decision of the Tribunal in Gujarat Ambuja Cement Ltd. Vs. CCE, (E/422/99-NB (DB)) [reported in 2000 (40) RLT 453]. The department has appealed these decision of the Commissioner (Appeals).

4. The grounds in the appeal run as follows. The assembly of the diesel generating sets from its components amounts to manufacture. The generating set so manufactured is exempted from duty. Therefore, by application of Rule 57R (1), credit cannot be taken of the duty paid on capital goods used exclusively in the manufacture of an exempted final product. The provisions of Rule 57T (7) (which the Tribunal in Gujarat Ambuja Cement Ltd. Vs. CCE relied upon) will not apply because the fabricator of the generating set had not undertaken any initial setting up or modification, renovation or expansion of the plant.

5. It is no doubt true that the immediate result of assembly or putting together of the alternator and the diesel engine resulted in the emergence of a diesel generating set. To that extent, it would be correct to say that these two components were used in the manufacture of a diesel generating set, which was exempted from duty. It is necessary at this point to take note of the significant difference in phraseology between Rule 57A, relating to modvat credit, of the duty paid on inputs (other than capital goods) used in or in relation to the manufacture of the final products, and Rule 57Q relating to credit to be taken of duty paid on capital goods. Rule 57A specifically provides that the inputs must be used in or in relation to the manufacture of the finished product. There is no such requirement in Rule 57Q. All that it requires is that the capital goods must be used in the manufacture of the specified final products. The requirement that the capital goods must be used in or in relation to the manufacture of the final product is absent. That this difference in wordings is deliberate is clear from the circular of the Board explaining the changes made in the budget of 1994 part of which relates to credit on capital goods incorporated in the Central Excise Rules. Paragraph 71.5 of this circular emphasises that "There is no reference to the expression "used in or in relation to the manufacture of final products". It goes on to say that "capital goods acquired by a manufacturer for use in his factory are eligible to modvat credit."

6. The manufacturer, in each case