M/S STEEL AUTHORITY OF INDIA LIMITED versus COMMISSIONER, CENTRAL EXCISE & CUSTOMS, BHUBANESWAR on 16 September 2022

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SUPREME COURT REPORTS

[2022] 12 S.C.R.

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M/S STEEL AUTHORITY OF INDIA LIMITED

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COMMISSIONER, CENTRAL EXCISE & CUSTOMS,BHUBANESWAR

(Civil Appeal No. 7269 of 2009)

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SEPTEMBER 16, 2022

[M. R. SHAH AND KRISHNA MURARI, JJ.]

Central Excise Rules, 1944 – r.57Q – Modvat credit on ‘GuideCar’ claimed by the appellant-assessee – Tribunal upheld thedemand of Modvat credit availed by the appellant on ‘Guide Car’Cholding that the appellant was not eligible for the duty credit inrespect of the ‘Guide Car’ – On appeal, held: Considering theprocess and the manner in which and/or for the purpose for whichthe ‘Guide Car’ is used, it cannot be said to be a ‘component’ ofCoke Oven Battery – It cannot be said that without the ‘Guide Car’Dthe Coke Oven Battery shall not be functional – ‘Guide Car’ isbeing used for the purpose of transporting the hot coke after it isprocessed in the Coke Oven Battery – Therefore, ‘Guide Car’ canbe said to be a different equipment distinct from the Coke OvenBattery and cannot be considered to be a part of the Coke OvenBattery – Thus, the appellant shall not be entitled to the ModvatEcredit on ‘Guide Car’ as ‘component’ and/or part of Coke OvenBattery as claimed – Adjudicating Authority and Tribunal rightlyconfirmed the demand of Modvat credit availed by the appellant on‘Guide Cars’ – However, the penalty was not justified at all –Appellant bonafidely believed that the goods would fall underFChapter sub-heading 8428.90 and/or that the ‘Guide Car’ can besaid to be a ‘component’ of the Coke Oven Battery – Therefore, theorder of penalty of Rs.1,00,000/- imposed by the Tribunal is setaside.

Words & Phrases – ‘component’ – Meaning of – Discussed.GPartly allowing the appeal, the Court HELD: 1.1 At the outset, it is required to be noted that inthe case of supplier, ‘Guide Car’ was classified under Chaptersub-heading 8603.00. Classification of a product done at theconsignor’s end shall be final and that cannot be changed/Hquestioned at the consignee’s end. Therefore, ‘Guide Car’ shall be treated and/or considered as classifiable under Chapter sub-heading 8603.00 of the tariff. The short question which is posedfor the consideration of this Court is, whether the appellant isentitled to Modvat credit under Rule 57Q of the Rules 1944 on‘Guide Cars’ treating the same as ‘components’ of Coke OvenBattery, as claimed? The appellant has claimed the Modvat creditunder Rule 57Q of the Rules 1944 on ‘Guide Car’. As per Rule57Q with respect to goods falling under Chapter 84 as mentionedat serial No. 2 in the Table attached with the Schedule to theTariff, there shall be credit of duty paid on capital goods used bythe manufacturer. ‘Guide Car’ shall not fall under Chapter 84.Therefore, it is the case on behalf of the appellant that it will fallat serial No. 5 of the Table, namely, ‘components’. Therefore,the short question which is posed for the consideration of thisCourt is, whether ‘Guide Car’ can be said to be ‘component’ ofCoke Oven Battery as claimed by the appellant? [Paras 6, 6.1,7][56-A-E; 57-B-C]

1.2 The test would be whether the ‘Guide Car’ can be saidto be an integral part necessary to the constitution of the wholearticle, namely, Coke Oven Battery and whether without it, theCoke Oven Battery shall not be complete? Considering theprocess and the manner in which and/or for the purpose for whichthe ‘Guide Car’ is used, by no stretch of imagination, it can besaid to be a ‘component’ of Coke Oven Battery. It cannot be saidthat without the ‘Guide Car’ the Coke Oven Battery shall not befunctional. The ‘Guide Car’ is being used for the purpose oftransporting the hot coke after it is processed in the Coke OvenBattery. Therefore, ‘Guide Car’ can be said to be a differentequipment distinct from the Coke Oven Battery and cannot beconsidered to be a part of the Coke Oven Battery. In that view ofthe matter, the appellant shall not be entitled to the Modvat crediton ‘Guide Car’ as ‘component’ and/or part of Coke Oven Batteryas claimed by the appellant. The Adjudicating Authority as wellas the learned Tribunal have rightly confirmed the demand ofModvat credit availed by the appellant on ‘Guide Cars’. [Paras8, 9][58-G-H; 59-A-D]

1.3 However, at the same time and in the facts andcircumstances of the case, the penalty was not justified at all.

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AThe appellant bonafidely believed that the goods would fall underChapter sub-heading 8428.90 and/or that the ‘Guide Car’ can besaid to be a ‘component’ of the Coke Oven Battery. Therefore,the order of penalty of Rs.1,00,000/- imposed by the Tribunal isrequired to be quashed and set aside. [Para 10][59-D-E]

B1.4 The appeal with respect to Modvat credit claimed bythe appellant on ‘Guide Car’ is dismissed. The AdjudicatingAuthority as well as the Tribunal have rightly denied the Modvatcredit to the appellant on ‘Guide Car’. The Tribunal has rightlyconfirmed the demand of Rs. 45,86,664/- being the Modvat creditavailed by the appellant on ‘Guide Car’. The appeal is dismissedCso far as the confirmation of demand of Modvat credit availed by the appellant on ‘Guide Car’. However, the order of penaltyimposed by the Adjudicating Authority, modified by the learnedTribunal to Rs. 1,00,000/- is hereby quashed and set aside. [Para12][60-B-D]

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Collector of Central Excise, Baroda v. Cotspun Limited,(1999) 7 SCC 633 : [1999] 3 Suppl. SCR 184 – heldinapplicable.

Saraswati Sugar Mills v. Commissioner of CentralExcise, Delhi (2014) 15 SCC 625 : [2011] 13 SCR 579E– relied on.

Case Law Reference

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CIVIL APPELLATE JURISDICTION: Civil Appeal No. 7269of 2009.

From the Judgment and Orders dated 16.10.2008 of the CustomsExcise and Service Tax Appellate Tribunal, Eastern Zonal Bench, Kolkatain Appeal No.EDM-261 of 2005.

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V. Sridharan, Sr. Adv., Aditya Bhattacharya, Ms. Apeksha Mehta,Ms. Mounica Kasturi, Pranav Mundra, R. Parthasarathy, Advs. for theAppellant.

N. Venkataraman, ASG, V. Chandrashekara Bharathi, NachiketaJoshi, Ms. Seema Bengani, Ms. Amritha Chandramouli, S. Ram Narayan,M. K. Maroria, Arvind Kumar Sharma, Advs. for the Respondent.

The Judgment of the Court was delivered by

M. R. SHAH, J.

1. Feeling aggrieved and dissatisfied with the impugned judgmentand order dated 16.10.2008 passed by the Customs, Excise & ServiceTax Appellate Tribunal, Eastern Zonal Bench, Kolkata (hereinafterreferred to as the ‘Tribunal’) in Appeal No. EDM-261/05, by which thelearned Tribunal has upheld the demand of Rs. 45,86,664/- (Rupees FortyFive Lakhs Eighty Six Thousand Six Hundred and Sixty Four only) andreduced the penalty to Rs. 1,00,000/- (Rupees One Lakh only) holdingthat the appellant was not eligible for the duty credit in respect of the‘Guide Car’, the assessee – M/s Steel Authority of India Limited haspreferred the present appeal.

2. At the outset, it is required to be noted that the dispute is withrespect to Modvat credit on ‘Guide Car’ claimed by the appellant –assessee.

3. The facts leading to the present appeal for the purpose of issueinvolved in the present appeal in a nutshell are as under:

A show cause notice dated 9.5.2000 was issued to the appellantseeking to deny Modvat credit amounting to Rs.3,09,78,465/- availed bythe appellant on capital goods, i.e., ‘Guide Car’ during the month ofMarch, 2000. As per the show cause notice, the Modvat credit on ‘GuideCar’ was not available since it was classifiable under Chapter sub-heading8603.00 of the Central Excise Tariff Act, 1985 (hereinafter referred toas the ‘Tariff’).

3.1 The appellant replied to the show cause notice. It was thecase on behalf of the appellant – assessee that there was no reason asto why ‘Guide Car’ should be classified under Chapter sub-heading8603.00. According to the appellant – assessee, ‘Guide Car’ is classifiableunder Chapter sub-heading 8428.90, as was being done by the supplierof the same to the appellant. An opportunity of personal hearing wasalso provided to the appellant.

3.2 Considering the fact that in the case of supplier, the ‘GuideCar’ was classified under Chapter sub-heading 8603.00, the Adjudicating A

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AAuthority was of the opinion that the appellant shall not be entitled to theModvat credit on ‘Guide Car’ considering Rule 57Q of the Central ExciseRules, 1944 (hereinafter referred to as the ‘Rules 1944’). The AdjudicatingAuthority disallowed the credit amounting to Rs. 1,71,60,376/- wronglyavailed by the appellant during the month of March, 2000 which includedthe Modvat credit availed by the appellant on ‘Guide Car’. TheBAdjudicating Authority – Commissioner also imposed the penalty ofRs. 5,00,000/- under Rule 173Q of the Rules 1944.

3.3 Feeling aggrieved and dissatisfied with the Order-in-originalpassed by the Commissioner – Adjudicating Authority, disallowing thecredit amounting to Rs. 1,71,60,376/- and imposing penalty ofCRs. 5,00,000/-, the appellant preferred an appeal before the learnedTribunal. By the impugned judgment and order, the learned Tribunal hasconfirmed/upheld the demand of Rs. 45,86,664/- being the Modvat creditavailed by the appellant on ‘Guide Car’. The learned Tribunal has reducedthe penalty to Rs. 1,00,000/-.

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3.4 Feeling aggrieved and dissatisfied with the impugned judgmentand order passed by the learned Tribunal upholding the demand ofRs. 45,86,664/- being the Modvat credit availed by the appellant on ‘GuideCar’ and penalty to the extent of Rs. 1,00,000/-, the assessee has preferredthe present appeal.E

4. Shri V. Sridharan, learned Senior Advocate appearing on behalfof the appellant has, though initially submitted that the ‘Guide Car’ shallnot be classifiable under Chapter sub-heading 8603.00, but it shall beclassifiable under Chapter sub-heading 8428.90, however consideringthe fact that in the case of very supplier and with respect to very supplyFof ‘Guide Car’, the appropriate authority classified ‘Guide Car’ underChapter sub-heading 8603.00, learned Senior Advocate appearing onbehalf of the appellant has fairly not pressed the said submission.However, he has submitted that ‘Guide Car’ can be said to be‘Component’ of Coke Oven Battery and therefore the case would fallunder serial No. 5 of the Table given below Rule 57Q of the Rules 1944.G

4.1 It is vehemently submitted by the learned Senior Advocateappearing on behalf of the appellant that ‘Guide Car’ was used for thepurpose of transportation of hot coke coming out of the Coke OvenBattery and therefore it can be said to be a ‘component’ and/or part ofthe Coke Oven Battery. Therefore, it is vehemently submitted that H

assuming that ‘Guide Cars’ are held to be classifiable under Chaptersub-heading 8603.00, in that case also, the same should be consideredfor capital goods credit as ‘component’ of the Coke Oven Battery.

4.2 In the alternative, it is submitted by Shri V. Sridharan, learnedSenior Advocate appearing on behalf of the appellant that in the presentcase supply of ‘Guide Car’ was in the month of November, 1999 and the‘Guide Car’ was classified by the appropriate authority under Chaptersub-heading 8603.00 subsequent to those supply and therefore theclassification of ‘Guide Car’ under heading 86.03 shall not be madeapplicable retrospectively and it shall be made applicable prospectively.Reliance is placed on the decision of this Court in the case of Collectorof Central Excise, Baroda v. Cotspun Limited, (1999) 7 SCC 633.

4.3 It is further submitted by Shri V. Sridharan, learned SeniorAdvocate appearing on behalf of the appellant that in the facts andcircumstances of the case and as there was no suppression and/or malafide intention on the part of the appellant in claiming the Modvat crediton ‘Guide Car’ and the appellant bonafidely believed that ‘Guide Car’would fall under Chapter sub-heading 8428.90 and therefore no penaltyis leviable.

4.4 Making the above submissions and relying upon the aforesaiddecision, it is prayed to allow the present appeal.

5. Shri V. Chandrashekara Bharati, learned counsel appearing onbehalf of the respondent – Revenue, while opposing the present appeal,has vehemently submitted that as in the case of supplier ‘Guide Cars’are classified under heading 86.03, thereafter it will not be open for thepurchaser to classify the goods under another heading, namely, in thepresent case, under sub-heading 8428.90.

5.1 It is further submitted by the learned counsel appearing onbehalf of the Revenue that ‘Guide Car’ being a different equipment anddistinct from the Coke Oven Battery cannot be considered as‘component’ and/or part of the Coke Oven Battery. It is submitted thattherefore the appellant shall not be entitled to the Modvat credit on ‘GuideCars’ under Rule 57Q of the Rules 1944. Learned counsel appearing onbehalf of the Revenue has heavily relied upon the decision of this Courtin the case of Saraswati Sugar Mills v. Commissioner of CentralExcise, Delhi (2014) 15 SCC 625 on the expression ‘component’.

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A5.2 Making the above submissions and relying upon the aforesaiddecision, it is prayed to dismiss the present appeal.

6. We have heard learned counsel for the respective parties atlength. At the outset, it is required to be noted that in the case of supplier,‘Guide Car’ was classified under Chapter sub-heading 8603.00. As perBthe settled position of law, classification of a product done at the consignor’send shall be final and that cannot be changed/questioned at theconsignee’s end. Therefore, ‘Guide Car’ shall be treated and/orconsidered as classifiable under Chapter sub-heading 8603.00 of thetariff.

C6.1 The short question which is posed for the consideration of thisCourt is, whether the appellant is entitled to Modvat credit under Rule57Q of the Rules 1944 on ‘Guide Cars’ treating the same as ‘components’of Coke Oven Battery, as claimed?

7. The appellant has claimed the Modvat credit under Rule 57QDof the Rules 1944 on ‘Guide Car’. As per Rule 57Q with respect togoods falling under Chapter 84 as mentioned at serial No. 2 in the Tableattached with the Schedule to the Tariff, there shall be credit of dutypaid on capital goods used by the manufacturer. As observed hereinabove,‘Guide Car’ shall not fall under Chapter 84. Therefore, it is the case onbehalf of the appellant that it will fall at serial No. 5 of the Table, namely,E‘components’.

Rule 57Q of the Rules 1994, relevant for our purpose, reads asunder:

Rule 57Q of the Rules 1994, relevant for our purpose, reads asunder:

“Rules 57Q. Applicability – (1) The provisions of this section shallFapply to goods (hereinafter in this section, referred to as the ‘finalproducts’) described in column (3) of the Table given below andto the goods (hereafter in this section referred to as “capitalgoods”), described in the corresponding entry in column (2) of thesaid Table used in the factory of the manufacturer of final products.

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M/S STEEL AUTHORITY OF INDIA LIMITED v. COMMISSIONER,CENTRAL EXCISE & CUSTOMS, BHUBANESWAR [M. R. SHAH, J.]

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5. Components, spares and accessories of the goodsSpecified against S. Nos. 1 to 4 above Therefore, the short question which is posed for the considerationof this Court is, whether ‘Guide Car’ can be said to be ‘component’ ofCoke Oven Battery as claimed by the appellant?

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8. This Court had an occasion to consider the expression‘component’ in the case of Saraswati Sugar Mills (supra). In theaforesaid decision, this Court had an occasion to consider the dictionarymeaning of the expression ‘components’ in Webster’s ComprehensiveDictionary; Oxford Advanced Learner’s Dictionary; Advanced LawLexicon and Encyclopaedic Law Lexicon. Thereafter, in paragraphs23 to 27, it is observed and held as under:

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“23. The expression “components” is not defined under theAct. Therefore, reference can be made to dictionaries tounderstand the meaning of the expression “components”.In Webster’s Comprehensive Dictionary, it is defined as“constituent part”. In Oxford Advanced Learner’sDictionary, Vol. 1, International Edn., the word “component”means a “constituent part”. Further, “constituent” means“serving to form or compose as a necessary part”.In Advanced Law Lexicon, 3rd Edn., 2005 (by P. RamanathaAiyar), the word “component part” is defined as “somethingwhich becomes an integral part of the goods in question bylosing its ‘physical and economic distinctiveness’.” It defines“constituent” (of a component) as “that helps make up orcomplete a unit or a whole’s one part of something that makesup a whole”.

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24. Encyclopaedic Law Lexicon, Vol. 2008-09 Edn., by JusticeC.K. Thakkar, describes the “components” as:

“It appears, therefore, that for an article to be called a componentpart, it is not necessary that even if it becomes part of another H

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article, it should still retain its identity. All that is necessary tomake an article a component part is that it goes in to thecomposition of another article. If an article is an element in thecomposition of another article made out of it, such an articlemay well be described as a component part of another article.It may be that the final product made may be in the nature ofa compound in which case, the elements forming componentparts may not be capable of any more separate identification.Equally, it may be that when a machinery is assembled out ofseveral parts forming that machinery, those machineries, thoseparts, even after their being filled may retain their individualityor identity.”

25. The meaning of the expression “components” as defined inthe dictionary is accepted and adopted by this Court in Star PaperMills Ltd. v. CCE [Star Paper Mills Ltd. v. CCE, (1989) 4 SCC724 : 1990 SCC (Tax) 138] and the same is quoted with approvalin CCE v. Allied Air-Conditioning Corpn. [CCE v. Allied Air-Conditioning Corpn., (2006) 7 SCC 735].

26. In order to determine whether a particular article is acomponent part of another article, the correct test would be tolook both at the article which is said to be component part and thecompleted article and then come to a conclusion whether the firstarticle is a component part of the whole or not. One must firstlook at the article itself and consider what its uses are and whetherits only use or its primary or ordinary use is as the component partof another article. There cannot possibly be any serious disputethat in common parlance, components are items or parts whichare used in the manufacture of the final product and without which,final product cannot be conceived of.

27. The meaning of the expression “component” in commonparlance is that “component part of an article is an integral partnecessary to the constitution of the whole article and without it,the article will not be complete”.”

Therefore, the test would be whether the ‘Guide Car’ can be saidto be an integral part necessary to the constitution of the whole article,namely, Coke Oven Battery and whether without it, the Coke OvenBattery shall not be complete?

9. Considering the process and the manner in which and/or forthe purpose for which the ‘Guide Car’ is used, by no stretch ofimagination, it can be said to be a ‘component’ of Coke Oven Battery. Itcannot be said that without the ‘Guide Car’ the Coke Oven Battery shallnot be functional. The ‘Guide Car’ is being used for the purpose oftransporting the hot coke after it is processed in the Coke Oven Battery.Therefore, ‘Guide Car’ can be said to be a different equipment distinctfrom the Coke Oven Battery and cannot be considered to be a part ofthe Coke Oven Battery. In that view of the matter, the appellant shallnot be entitled to the Modvat credit on ‘Guide Car’ as ‘component’ and/or part of Coke Oven Battery as claimed by the appellant. TheAdjudicating Authority as well as the learned Tribunal have rightlyconfirmed the demand of Modvat credit availed by the appellant on ‘GuideCars’. We are in complete agreement with the view taken by theAdjudicating Authority as well as the learned Tribunal.

10. However, at the same time and in the facts and circumstancesof the case, the penalty was not justified at all. The appellant bonafidelybelieved that the goods would fall under Chapter sub-heading 8428.90and/or that the ‘Guide Car’ can be said to be a ‘component’ of the CokeOven Battery. Therefore, the order of penalty of Rs.1,00,000/- imposedby the Tribunal is required to be quashed and set aside.

11. Now so far as the submission on behalf of the appellant thatthe classification of the ‘Guide Car’ under Chapter sub-heading 8603.00shall be applicable prospectively and shall not be applicable retrospectivelywith respect to supply in the month of November, 1999 and the relianceplaced upon the decision of this Court in the case if Cotspun Limited(supra) is concerned, the aforesaid has no substance. It is required tobe noted that it was a case of self-assessment by the supplier and thesupplier classified the ’Guide Car’ under Chapter sub-heading 8428.90,though it was classifiable under Chapter sub-heading 8603.00. Thatthereafter the appropriate authority classified the ‘Guide Car’ underChapter sub-heading 8603.00. Therefore, it will relate back to the originalclaim and/or relate back to the date of supply/self-assessment.

11.1 Now so far as the reliance placed upon the decision of thisCourt in the case of Cotspun Limited (supra) is concerned, the sameshall not be applicable to the facts of the case on hand. In the casebefore this Court, it was a case of an approved classification list soughtto be corrected subsequently and to that it is observed that the levy of AB

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Aexcise duty on the basis of an approved classification list is the correctlevy, at least until the correctness of the approval is questioned by theissuance of a show cause notice to the assessee. Therefore, on facts,the aforesaid decision shall not be applicable to the facts of the case onhand.

B12. In view of the above and for the reasons stated above, thepresent appeal with respect to Modvat credit claimed by the appellanton ‘Guide Car’ is hereby dismissed. The Adjudicating Authority as wellas the learned Tribunal have rightly denied the Modvat credit to theappellant on ‘Guide Car’. The learned Tribunal has rightly confirmedthe demand of Rs. 45,86,664/- being the Modvat credit availed by theCappellant on ‘Guide Car’. The present appeal is dismissed so far as theconfirmation of demand of Modvat credit availed by the appellant on‘Guide Car’. However, the order of penalty imposed by the AdjudicatingAuthority, modified by the learned Tribunal to Rs. 1,00,000/- is herebyquashed and set aside. To that extent, the present appeal is partly allowed.

DIn the facts and circumstances of the case, there shall be no order as tocosts.

Divya Pandey

Appeal partly allowed.

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