Per Shri P.C. Jain :

Briefly stated, the facts of the case are as follows :-

1.1 The Appellants herein are manufacturer of abrasive materials. For this purpose, they have installed a plant. For the purpose of running the said plant, they obtained a transformer after payment of duty and claimed modvat credit in respect thereof under rule 57Q of Central Excise Rules, 1944. The modvat credit was availed by them on two transformers to the tune of Rs. 46,747 on 28.7.94. The lower authorities have denied the benefit of rule 57Q on the ground that the transformers are not meant for the purpose of producing or processing of any goods or for bringing about any change in any substance in the manufacture of final products. The purpose of transformer obviously is to step down the voltage of electricity received by the Appellants in their plant.

1.2 Hence this Appeal before this Tribunal.

2. Short question involved in this Appeal, therefore, is whether the modvat credit would be permissible on transformers under rule 57Q as it existed before 16.3.95. It is admitted to both sides that clause (d) of Explanation I to rule 57Q of the Central Excise Rules, 1944 allows the benefit of modvat credit on the transformers of the capacity exceeding 75 KVA, which the present transformers are, w.e.f. 16.3.95. An argument has been taken by the lower authorities that since this amendment including this type of transformers has been specifically made in the rule 57Q w.e.f. 16.3.95, the obvious intention of the rule 57Q, as it existed before the said amendment, is that it did not allow the benefit of modvat credit on such transformers prior to 16.3.95.

3. Learned Consultant Shri D.N. Singh submits that transformers would be governed by the definition in the Explanation I to rule 57Q in as much as their production of abrasive materials cannot be carried on without supplying the electricity to their machineries in the plant with the help of the transformers. Therefore, he submits that even though the transformers may not be directly used for producing or processing of any goods or for bringing about any change in any substance in the manufacture of final products, nevertheless the transformers can be said to be indirectly used for producing or processing of the goods i.e. abrasive materials manufactured by them. He further submits that the expression "used for producing or processing" mentioned in clause (a) of Explanation 1 to rule 57Q does not say that it should be used directly. It can also mean the indirect use as well. He submits that unless the transformer is used, the plant itself cannot be run and the goods, viz. abrasive materials cannot be manufactured. He also draws attention to the fact that clause (a) interalia, includes the entire plant and clause (b) includes the component of that plant. Component of the plant, according to him, would mean even separate machinery or equipment. He, therefore, submits that the definition of capital goods as it stood before 16.3.93, is very widely worded and would include all machineries used in a plant, which in turn is used for manufacture of any final products. Viewed in that light, he submits the modvat credit has been wrongly denied by the lower authorities. He urges for allowing the Appeal.

4. Opposing the contention of the learned Consultant, Shri S.N. Ghosh, learned JDR submits that apart from the argument as to what has been stated by the lower authorities in the context of amendment by Notification 11/95 dated 16.3.95, inserting clause (d) to Explanation I to rule 57Q, he urges that even the Explanation I as it existed in clauses (a), (b) and (c) if read as a whole, would not include the transformers within the scope of the expression "capital goods". Shri Ghosh further states that the word "plant" occurring in clauses (a) and (b) would refer to those things which are not covered by other expressions in clause (a) i.e. which are not covered by the expressions machines, machinery, equipment, apparatus, too