Judgment:
2. Revenue filed this appeal against the order-in-appeal passed by the Commissioner (Appeals) whereby the benefit of MODVAT credit as capital goods was allowed on the following items: 3. The contention of the Revenue is that period in dispute is from September 94 to February, 95 and during this period the definition of capital goods as per the provisions of Rule 57Q(1) of the Central Excise Rules covers machines, machinery, plant, equipment, apparatus, appliances or tools etc. used or producing or processing of any goods or for bringing about any change or substance for the manufacture of the final products. The components spare parts; accessories of the machines/machinery etc. used in the manufacture of final product were also covered under the definition. The contention of the Revenue is that research and development equipment cannot be said considered to be covered under the definition of capital goods as this equipment is not used for manufacture or processing of the goods in relation to the final product. The contention is also that safety tools are only Hammer, Pickaxe and Chisel, which are used for repair of the building.
The Gas detection system is also not used for manufacture of the final product. The same is the contention in respect of the Tower packing.
4. The contention of the respondents is that the respondents are engaged in the manufacture of different types of industrial chemicals and Glycol. For manufacture of the chemicals and glycols to improve the quality of the product they are regularly required to do research hence the research and development equipment is required for this purpose.
The contention is that based on the research and development equipment, the respondents manufactured goods for commercial sale. In respect of Module the contention is that this is a part of control panel that control the electricity motors of plant. Therefore, it is a integral part of the plant. In respect of Gas Detection system, Homogeniser and Tower packing, the contention is that they are manufacturing liquid chemicals. Therefore, the Gas detection system is necessary to prevent fire incident or to detect the leakage of chemicals. The lube is used to prevent the leakage of pipelines and used for joining the joints of pipes. Tower packing is required as insulation material to maintain temperature in various processes of vessels and pipelines.
5. The research and development of equipment was required to maintain and improve the quality of the chemical manufactured by the respondent.
As per the definition of the capital goods, plant, machine and machinery, apparatus, equipments 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. The research and development equipment is used for maintaining of quality of the chemicals and for the improvement of quality. Therefore, the Commissioner (Appeals) has rightly allowed the benefit of the capital goods. Module Gas detection system, Lube and Tower packing are also used as components and accessories to the machines/machinery and plant which is used for the manufacture of final product the Tower packing is also used to maintain the temperature. Therefore, the credit was rightly allowed.
6. In respect of the Safety Tools as per write-up given by the respondent, these are used for chipping the RCC floor and these are hammer, pickaxe and chisel. From the very nature of the goods as these are used for repair of civil works, therefore, the respondents are not entitled for the credit as capital goods as these are not used in or in relation to the manufacture of the final product. The impugned order whereby the benefit of capital goods were allowed in respect of this item, is set aside. The appeal is disposed of as indicated above.