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Judgment
R. Jayasimha Babu, J.—The issue requiring our consideration is as to whether Modvat credit is available to a manufacturer in this case a
manufacturer of Viscose Rayon in respect of the wires and cables which are used for the transmission of the electrical energy from the Sub Station
within the premises of the manufacturer to the blowers which are used to take out Sulphur dioxide gas generated in the manufacturing process
employed in the factory, unless that noxious gas is removed, it will not be possible for the workmen to continue to work within the premises of the
factory, as the gas is generated in the process of manufacture, the workmen being engaged in operating, the machines employed in that process.
The Modvat credit so claimed was not granted on the ground that those wires and cables are not used in the process of manufacture and,
therefore, do not constitute capital goods for the purpose of Rule 57Q of the Central Excise Rules, as it stood in the year 1994. Though the
Commissioner had allowed the appeal of the assessee, the Tribunal restored the order of the assessing authority denying the Modvat credit. The
manufacturer-assessee has, therefore brought this reference before us.
The Modvat scheme was introduced in the Excise Law in the year 1986. It was initially confined to the inputs used in the manufacture of the
specified excisable final products, till the year 1994. The goods which were excluded from that category of inputs by and large were allowed
Modvat credit in 1994 by extending the scheme to capital goods, which were till then ineligible for Modvat credit. The excisable goods used as
inputs under Rule 57Q which occurs in Chapter AAAA. Credit of duty paid on capital goods used by the manufacturer of specified goods, was
introduced in the year 1994. The object of the Rule is to allow credit of specified duty paid on the capital goods used by the manufacturer in his
factory, and for utilising the credit so allowed towards payment of duty of excise leviable on the final products, subject to the conditions set out in
the Rule. ""Capital Goods"" is defined in the Explanation to Rule 57Q(1). That definition as it stood in the year 1994 read as under:
(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, apparatus, tools or appliances used for
aforesaid purpose; and
(c) moulds and dies, generating sets and weigh-bridges used in the factory of the manufacturer.
It is the case of the applicant manufacturer that wires and cables in respect of which the Modvat credit was claimed, fall within the scope of the
term ""plant""'' used in Clause (a) of the definition of ""Capital goods"" in the Explanation to Rule 57Q. The submission is that the word ""plant"", though
found in association with machines, machinery, equipment, apparatus, tools or appliances must be given a meaning which is not already contained
within the scope of the other terms used in that provision, and that the word ""plant"" being a word of a very wide import, is sufficiently elastic to
take within its for all the installations which have a nexus with the manufacture of the final product, such nexus to be judged by the standard of the
need for such installation for the manufacture of the final product. It was submitted that in order to be regarded as capital goods, the goods in
question need not have a direct role in bringing about the change in the raw material, and that the installations which are required, to make the
machineries usable for being employed in the process of manufacture would also be covered, so long as such installation can be regarded as
goods"". Buildings, however, would not come within the scope of ""plant"", as that expression has been used herein the context of capital goods, and
buildings cannot be regarded as goods. The fact that the wires and cables are used for providing the electrical supply to the blowers and the
blowers in turn are used for removing the noxious gas generated in the process of manufacture, would be sufficient to establish the nexus between
those items and the manufacture of the final product, as without the aid of these items, work cannot go on in the factory as workmen would be
unable to continue to be present in the factory premises and continue to work on the machines which are used in a process which results in the
generation of the noxious gas. Such blowers are necessary to protect the health and safety of the workmen.
The requirement in the definition which is an exhaustive definition that the ""capital goods"" referred to in the definition, be used for producing or
processing or for bringing about any change in any substance for the manufacture of the final product, it was submitted, is satisfied, as the cables
are used for running the blowers without which the process of production cannot continue. The words used for producing or processing, it was
submitted, does not imply that the user must be direct, and that it cannot be indirect. Wires and cables required for bringing the electrical power to
run the machinery and apparatus and appliances which are used in the production or processing is also used for producing or processing the
goods, as in the absence of such cables, power cannot be supplied to the machines and appliances and without the aid of power, those machines
and appliances cannot be used for any purpose whatsoever.
Mr. Arvind P. Datar, learned Senior Counsel for the manufacturer also drew our attention to the decision of the Supreme Court in the case of
J.K. Cotton Spinning and Weaving Mills Co. Ltd. v. Sales Tax Officer, Kanpur 1997 (91) E.L.T. 34 wherein, the Court observed at paragraph
12 that electrical humidifier, exhaust fans and similar electrical equipment would in the modern conditions of technological development normally be
regarded as equipment necessary to effectually carry on the manufacturing process. While so observing, the Court excluded items such as fans,
coolers, airconditioning units. Though that case was one which arose under the Sales Tax Act, the expression considered was in the manufacture.
That expression, the Court held, took within it''s compass, all processes which are directly related to the actual production. The Court also
observed that if the process or activity is so integrally related to the ultimate manufacture of goods, so that without that process or activity
manufacture may, even if theoretically possible, by commercially inexpedient, goods used for those purposes would qualify as things used in the
manufacture.
Reference was also made by counsel to the case of Collector of Central Excise, Jaipur Vs. Rajasthan State Chemical Works, Deedwana,
Rajasthan, , wherein, it was held that if any operation in the course of manufacture is so integrally connected with the further operations which result
in the emergence of manufactured goods, the entire process must be regarded as one continuous stream.
It was also pointed out by counsel that in the initial years after the extension of the Modvat credit to capital goods, there was considerable
ambiguity in the manner in which the definition was to be understood and applied, and that, subsequently that ambiguity has been cleared by the
rulemaking authority itself which has by the subsequent amendments, made it amply clear that wires and cables are not to be regarded as excluded
from the category of ""capital goods"".
Counsel also invited the attention of the court to the decision of the Supreme Court in the case of M/s. Rohit Pulp and Paper Mills Ltd. Vs.
Collector of Central Excise, Baroda, , where, the court considered the maxim ""noscitur a sociis"", which as explained by the court means that the
meaning of the word is to be judged by the company it keeps. Counsel relied on that principle to contend that the word ""plant"" must like all other
items used in the definition clause in Sub Clause (a) must be taken to refer to things which are used in the manufacture of the goods. Counsel
submitted that machines cannot run by themselves and the prime mover required for running the machine is the electrical energy which must
necessarily be brought to the place where the machines are kept, and that the wires and cables required for bringing that energy are essential for
the process of manufacture and would fall within the scope of the term ""plant"".
Mr. V.T. Gopalan, Learned Additional Solicitor General appearing for the Revenue submitted that in Economic Legislation the court is only
required to consider the legislative intent as disclosed in the Legislation under consideration, and considerations of equity removal of inconsistency
cannot come in the way of the legislative intent being effectuated. It was submitted that the fact that the Rule was subsequently amended would
only indicate that until such amendment, the benefit subsequently given could not have been claimed prior to the amendment. Counsel also laid
stress on the definition of ""capital goods"" and pointed out that the definition is an exhaustive one, and to such a definition no additions could be
made to widen the scope of the term ""capital goods"".
It was also submitted by the learned Additional Solicitor General that the word ""plant"" though a word of wide import, cannot be construed in
it''s widest amplitude in all contexts and in all statutes, and that unlike in the Income Tax Act which has a definition of the word ""plant"" which is an
inclusive definition, that term has not been defined in the Excise Act, or Rules. The meaning to be assigned to the term must, therefore, be gathered
having regard to the object and purpose of the scheme, the context in which the term is employed, and the purpose for which that term has been
used in the Rule. Counsel also said that the observation made by courts while interpreting statutory provisions contained in other enactments,
would have no bearing in determining the meaning to be assigned to a word used in the Excise Rules.
Attention was invited by counsel to the decision of the Supreme Court in the case of State of Bihar and Others Vs. Steel City Beverages Ltd.
and Another, , wherein, the court observed at paragraph 5 as under :
Therefore, what we have to consider is whether under the Deferment Rules ""plant"" would include bottle and crates employed by an industrial unit
manufacturing soft drinks and beverage''s for carrying on its business. The word plant has a very wide meaning and a variety of articles, objects or
things have been held to be plant. Dictionaries have defined plant as land, building, fixtures, machinery, implements and tolls, and apparatus used in
carrying on a mechanical operation or an industrial process. This Court in the case of Commissioner of Income Tax, Andhra Pradesh Vs. Taj
Mahal Hotel, Secunderabad, and Scientific Engineering House (P) Ltd. Vs. Commissioner of Income Tax, Andhra Pradesh, referred to with
approval the observations of Lindley, L.J. in Yarmouth v. France (1887) 19 QBD 647 that in its ordinary sense plant includes whatever apparatus
is used by a business, man for carrying on his business, not his stock in-trade which he buys or makes for sale, but all goods and chattels, fixed or
moveable, live or dead, which he keeps for permanent employment in his business.
The court, after having noticed that the term ""plant"" was a term of wide import by itself, held that such a wide meaning cannot be assigned to the
word ""plant"" ignoring the context in which the term had been employed, and the purpose of the statute in which that provision is found. Having
regard to the language of the Rule made under the Sales Tax Act which was under consideration in that case, the Court held that, that word was
not used in it''s wider sense and did not include within it''s meaning land, building and machinery. It held that the crates and bottles used for storing
the beverages manufactured by the respondent before it could not be regarded as plant.
Reliance was also placed on the recent decision of the Supreme Court in the case of Commissioner of Income Tax, Trivandrum Vs. M/s.
Anand Theatres, , wherein, the court inter alia observed that the meaning to be assigned to the word ""plant"" in the context of the scheme of Section
32 of the Income Tax Act was not to be dependant upon the meaning given in other judgments in relation to the term in other contexts. The court
quoted with approval the observations of the Court in the case of Deputy Chief Controller of Imports and Exports, New Delhi Vs. K.T. Kosalram
and Others, . The passage quoted runs as under :-
In our opinion dictionary meanings, however helpful in understanding the general sense of the words cannot control where the scheme of the
statute or the instrument considered as a whole clearly conveys a somewhat different shade of meaning. It is not always a safe way to construe a
statute or a contract by dividing it by a process of etymological dissection and after separating words from their context to give each word some
particular definition given by lexicographers and then to reconstruct the instrument upon the basis of these definitions. What particular meaning
should be attached to words and phrases in a given instrument is usually to be gathered from the context, the nature of the subject-matter, the
purpose or the intention of the author and the effect of giving to them one or the other permissible meaning on the object to be achieved. Words
are after all used merely as a vehicle to convey the idea of the speaker or the writer and the words have naturally, therefore, to be so construed as
to fit in with the idea which emerges on a consideration of the entire context"".
The meaning to be assigned to the word ""plant"" in the definition of ""capital goods"" in Rule 57Q of the Rules must, therefore, necessarily be in
accord with the scope and purpose of the Rule, the context in which the term had been employed, and the object that it seeks to achieve.
The object of the Rule is to extend the facility of Modvat credit to capital goods used by a manufacturer of specified goods. The person
claiming benefit must first be a manufacturer, and second, he must be engaged in the manufacture of specified goods. The term ""goods"" by
definition excludes certain fixed assets like lands and buildings. The term ""capital goods"" in Rule 57Q, however, widely construed cannot take
within it''s scope lands and buildings. The manufacturer claiming the benefit is required to show that the goods in respect of which the credit is
claimed falls within the category of ""Capital Goods"". ""Capital Goods"" used in Rule 57Q is in contrast to Rule 57A, which deals with the inputs
which are used in or in relation to the manufacture of the final product. Things which properly fall within the scope of Rule 57A are necessarily
excluded from the scope of Rule 57Q. The inputs as also the final products are ''goods''. It is only ''goods'' which are capable of being regarded as
capital goods - things which are movables - that are covered by Rule 57Q when such movables are capital goods. Capital goods the context of
Modvat scheme are necessarily excisable goods and are themselves the result of manufacture.
The term ""manufacture"" has been defined in Section 2(f) of the Central Excise Act. That definition is an inclusive definition. That definition reads
as under:
manufacture"" includes any process, -
(i) incidental or ancillary to the completion of a manufactured product; and
(ii) which is specified in relation to any goods in the Section or Chapter notes of the Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) as
amounting to manufacture.
and the word ""manufacturer"" shall be construed accordingly and shall include not only a person who employs hired labour in the production or
manufacture of excisable goods, but also any person who engages in their production or manufacture on his own account.
The reference to manufacture in Rule 57Q of the Rules has thus to be understood with the meaning assigned to it in Section 2(f). That definition
is not an exhaustive one, it is an inclusive one, and takes within it''s scope things which may properly be regarded as manufacture, but which may
not have been spelt out in the definition.
The Supreme Court in the case of P. Kasilingam and others Vs. P.S.G. College of Technology and others, made the following observations
with regard to the manner in which exhaustive and inclusive definitions are to be understood :
A particular expression is often defined by the Legislature by using the word ''means'' or the word ''includes''. Sometimes the word ''means and
includes'' are used. The use of the word ''means'' indicates that ""definition is a hard and fact definition, and no other meaning can be assigned to the
expression than is put down in the definition."" The word ''includes'', when used, enlarges the meaning of the expression defined so as to
comprehend not only such things as they signify according to their natural import but also those things which the clause declares that they shall
include. The words ''means and includes'', on the other hand, indicate an exhaustive explanation of the meaning which, for the purposes of the Act,
must invariably be attached to these words or expressions"".
Though the definition of ""capital goods"", appears to be an exhaustive definition, that definition is in fact in so far as it refers to ""manufacture"" an
inclusive one, the term ""manufacture"" used therein taking within It''s scope all things which naturally fall within the scope of the expression
manufacture"".
So long as the claim made by the manufacturer is in respect of the capital goods of the nature spelt out in any of the sub clauses of the
defomotopm (sic) of ""capital goods"", and those goods are used for producing or processing of any goods, or for bringing about any change in any
substance for the manufacture of the final product, such goods would be eligible for the credit provided for in Rule 57Q of the Rules subject to the
excisable goods manufactured being capable of being regarded as final products for Rule 57Q(1).
The term ""manufacture"" has been interpreted by the Supreme Court in numerous decisions, and has received meanings which have not always
been uniform. That is so because of the context in which the term was required to be explained and understood. ""Manufacture"" in the context of
Excise Law has been explained by the Supreme Court in the case of Union of India (UOI) Vs. Delhi Cloth and General Mills, , wherein, the
constitution Bench of the court in paragraph 14 of the judgment observed :
The word ""manufacture"" used as a verb is generally understood to mean as ""bringing into existence a new substance"" and does not mean merely to
produce some change in a substance, however minor in consequence the change may be. This distinction is well brought about in a passage thus
quoted in Permanent Edition of Words and Phrases, Vol. 26, from an American Judgment. The passages reads thus :-
Manufacture implies a change, but every change is not manufacture and yet every change of an article is the result of treatment, labour and
manipulation. But something more is necessary and there must be transformation; a new and different article must emerge having a distinctive name,
character or use.
In paragraph 18 of the judgment, the Court referred to the definition of ""manufacture"" in Section 2(f) of the Excise Act, and observed :
The definition of ""manufacture"" as in Section 2(f) puts it beyond any possibility of controversy that if power is used for any of the numerous
processes that are required to turn the raw material into a finished article known to the market the clause will be applicable....
The Court also in that case referred to the meaning of the word ""goods"", which term has not been defined in the Act. After referring to the
passages contained in the Words and Phrases, Permanent Edition, Vol. 18 and the definition in Webster, the Court held at paragraph 17 that,
...to become ""goods"" an article must be something which can ordinarily come to the market to be bought and sold :
The definition of ""manufacture"" in Section 2(f) includes any process incidental or ancillary to the completion of a manufactured product. The
manufacture"" referred to in definition of ""Capital goods"" in Rule 57Q must, in so far as the term ""plant"" is concerned, be construed as referring to
all the facilities other that lands and buildings which are properly capable of being regarded as ""goods"" and are used directly and indirectly for
producing or processing goods, or bringing about any change for the manufacture of final product. The word used in that definition is not required
to be qualified further by reading in the word ''directly'' into that definition. The used can be direct or indirect. So long as there is a nexus between
the thing used and the production or process which is employed to manufacture the final product, the goods can be regarded as used for the
purposes of this definition.
Thus, the definition of ""capital goods"" must be construed as taking within itself capital goods used directly or indirectly for the production or
processing of bringing about any change for the manufacture of the final product and the term ""plant"" is required to be construed along with the
other words used in that definition, particularly used and ''manufactured'' and should be understood as taking within it''s scope all things that are
necessary and incidental for the production and processing which results in the manufacture of the final product.
Blowers which are attached to the machines which are used directly for producing the final product are essential for the operation of the
machines. They are capable of being regarded as appliances under Clause (a), or as accessory under Clause (b). The wires and cables required to
make the blower operational being essential, as without the supply of power the blowers cannot be run, wires and cables which carry the power to
the blowers and which are undoubtedly in the nature of goods, are also required to be regarded as capital goods.
The fact that wires and cables have not been specifically mentioned in Clause (a) or (b) or (c) does not on that score alone imply that it was
meant to be excluded. If they can be regarded as forming part of any of the categories referred to in one or the other clauses, they are still capable
of being treated as capital goods.
It is also necessary to keep in view the fact that this case arose in the early years of the introduction of the Modvat scheme for capital goods
when there was uncertainty in the minds of all concerned as to the precise scope of the coverage. The fact that by subsequent amendments, it has
been made clear that wires and cables were not meant to be excluded from the category of capital goods, would only mean that an ambiguity
which existed earlier was subsequently clarified. It does not mean as was contended for the Revenue, that a concession which was not available
earlier was extended for the first time by the subsequent amendment.
Whenever the legislature or the Rule making authority employs words of general import, certain degree of ambiguity is inevitably associated
with the term so employed. The fact that the rule making authority has chosen to understand those terms in a narrow sense does not mean that that
was the sense in which the rule was intended to be understood. It is for the Court to ultimately decide the true scope of the language employed in
the statute having regard to the settled canons of construction governing the interpretation of statutes and statutory rules.
The word employed in the definition viz., ""plant"" being a term of wide import, the facts that it is used in the context of process of manufacture,
the definition of ""manufacture"" is an inclusive definition in the Act; the further fact that it is found in the context of the enumerated things of a class
being used; and in the absence of any specific requirement that the use should be directly in the production or processing of goods, warrant a wider
meaning being assigned to the word ""plant"" in that definition, and not limit it only to things which directly go into the production process. It would
include goods which are necessary to make that production process possible. Power being essential to the process, wires and cables required to
bring that power to the machines, appliances, etc., are also covered by the definition of ""capital goods"".
The term ""manufacture"" and the words used in connection therewith such as ''use in the manufacture'' or ''use in or in relation to manufacture''
must, having regard to the technological advances and the progressive ideas concerning the need for ensuring the health and safety of the workmen
employed in the manufacturing process, and preserving the environment and limiting the pollution, must receive an expanded meaning. This has
been recognised by the Supreme Court in the case of Indian Farmers Fertiliser Cooperative Limited Vs. Collector of Central Excise, Ahmedabad,
. In that case, the assessee''s claim that the effluent treatment plant should be regarded as part of the process of manufacture of fertilisers had been
negatived by the statutory authorities. The Court at paragraph 9 observed :
It is too late in the day to take the view that the treatment of effluents from a plant is not an essential and integral part of the process of
manufacture in the plant. The emphasis that has rightly been laid in recent years upon the environment and pollution control requires that all plants
which emit effluents should be so equipped as to rid the effluents of dangerous properties. The apparatus used for such treatment of effluents in a
plant manufacturing a particular end-product is part and parcel of the manufacturing process of that end-product"".
The observations of the Court with regard to the concern for environment and pollution control apply with even greater force to preservation of the
health and safety of the workmen employed in a process which generates noxious gas from which the workmen need to be protected, and which
gas is required to be removed simultaneously with the production of that gas for protecting the health and safety of the workmen. The blowers used
for removing that gas and the wires and cables required to make that blower operational must, therefore, be regarded as forming part of the
manufacturing process and used in that process.
We, therefore, answer the question referred to us at the instance of the assessee as to whether the Tribunal was correct in holding that the
wires and cables are not capital goods as defined in Rule 57Q of the Central Excise Rules, in favour of the assessee, and against the Revenue. We
hold that the wires and cables and covered by para l(a) of the Explanation to Rule 57Q. So far as the question concerning the extent to which
reliance can be placed on the Finance Minister''s speech, we hold that that speech cannot be the guide for determining the scope of the Rule.
Parties to bear their respective costs.