Per Shri V.P. Gulati :

The issue in the appeal relates to the grant of MODVAT credit in the case of weighing machines and also the air-conditioner used in the appellants factory. The learned lower authority has allowed the benefit in respect of both the units. The Revenue is aggrieved against this.

2. The learned Advocate for the respondents has pleaded that he is not contesting the claims of the revenue in the facts of this case. As it is on a perusal of the lower authority's order it is seen that the weighing of the components is done for the purpose of convenience of giving a certain number of pieces for assembly. So far as the weighing machine is concerned, the learned Advocate for the respondent pleads that he is withdrawing his claim in respect of this particular item. In view of what has been pleaded, the appeal of the Department in so far as this is concerned, is allowed.

3. In regard to the grant of MODVAT credit in respect of the airconditioner, the learned JDR for the Department, Shri Murugandy has pleaded that it is to provide a congenial atmosphere for the manufacture of the watches. He concedes that a dust free atmosphere may be required so also to control the temperature conditions. He has pleaded that the definition of capital goods as set out under Rule 57 Q does not cover the airconditioner used by the respondents within its ambit.

4. The learned Advocate has pointed out that this Tribunal in the case of CCE, Coimbatore Vs. Shanmugaraja Spinning Mills Pvt. Ltd., reported in 1997 (89) ELT 84=1996 (16) RLT 819 (CEGAT-SZB) has held that notwithstanding the requirement of a certain level of humidity during the manufacture of the textiles, the benefit of MODVAT credit in respect of the same could not be allowed taking into consideration the definition of capital goods as set out under Rule 57Q. The learned Advocate for the respondents in this connection referred to the judgement of the Hon'ble Gujarat High Court in the case of Industrial Machinery Manufacturers Pvt. Ltd. Vs. The State of Gujarat reported in 1965 (16) STC 380. In that case the Hon'ble High Court has held as under :

Every item of machinery which has a use in the manufacture of finished goods, which plays some role in the process of manufacture of finished goods and without which manufacture of finished goods would not be possible would be machinery used in the manufacture of such goods. Such machinery would be an essential and integral part of the plant which manufactures finished goods and would certainly satisfy the description that it is machinery used in the manufacture of finished goods. If this test be applied, it is clear that humidifiers are machinery used in the manufacture of cloth.

5. The learned JDR for the department has pleaded that Rule 57Q was subsequently amended on 16.3.95 whereby the airconditioner has been specifically excluded. He has pleaded this exclusion should be treated as clarificatory in nature. I observe that this Bench of the Tribunal in the context of the humidifier has held as under:

7. It is observed that as urged by the learned DR for the Department, the definition of capital goods as set out under the rules is restrictive and the words used are that capital goods should be such as are used for production, processing or for bringing out any change in the substance for the manufacture of the final products. The three words used in the rules viz. production, processing or for change in the substance would go to show that the capital goods have to be used as one in which the process and manufacture or change in the products are brought about. The term production and process as set out in the Oxford Dictionary are reproduced below for convenience of reference: