N.P. Gupta and Kishan Swaroop Chaudhari, JJ.

1. This appeal, by the Assessee, has been filed against the Order of the Tribunal dated, 26th July, 2005,dismissing the same, by relying upon a larger Bench Judgment of the Tribunal, in Jaypee Rewa Plant v. CCE reported in , and thereby upholding the disallowance of MODVAT/ CENVAT credit.

2. The necessary facts are, that the Assessee was issued a Show Cause Notice, on the ground, that Assessee has availed of MODVAT/CENVAT credit on welding electrodes, during June, 2003 to March, 2004, treating the same as capital goods, whereas the same appeared not to be covered under the definition of capital goods.

3. The Assessee contested the notice and contended, that while electrodes were not used by them for fabrication of structure/sheds, rather they are accessories of machinery for soldering, brazing or welding, falling under Chapter Heading No. 84.68 and since Chapter Heading No. 84.68 is an item, eligible under Rule 2b(i) of the CENVAT Credit Rules, 2002, the welding electrodes acquires eligibility under Rule 2(b)(iii). It was also contended, that if the credit is not allowed under capital good scheme, then, the claim of the Assessee may be treated as having been made treating the electrodes as inputs. It was then contended, that welding electrodes are necessarily used for maintenance of their plant for smooth running, as these are mainly used for affixing the component, namely sheets, plates etc. on the damaged parts of the machines. As such they are being used as inputs, in or in relation to, the manufacturer of final products.

4. Learned Dy. Commissioner confirmed the demand, by holding, that the welding electrodes do not fall under any of the heads mentioned in Rule 2. Since goods are used for repairing/maintenance of the capital goods, are not eligible for CENVAT credit.

5. Aggrieved by this Order, appeal was filed before the commissioner, which came to be dismissed, by holding, that welding electrodes are not eligible capital goods, and since they have been used for maintenance of plant and machinery, and have not been used, in or in relation to, manufacture of finished goods, they do not satisfy the definition of "inputs". A further appeal filed before the learned Tribunal was dismissed.

6. This appeal was admitted on 13th January, 2006, by framing the following substantial question of law:

Whether welding electrodes used for repairs and maintenance of plant and machinery are eligible for CENVAT credit both as capital goods as well as inputs.

7. We have heard learned Counsel for the parties and have gone through the Judgment in Jaypee Rewa Plants case, as relied upon by the learned Counsel for the department, and have also gone through the Judgment of Honble Supreme Court, in CCE v. Jawahar Mills reported in : 2001(132)ELT3(SC) , relied upon by the learned Counsel for the Appellant.

8. In Judgment of Honble Supreme Court in Jawahars case, it is held, that capital goods can be machines, machinery, plant equipment, apparatus, tools or appliances. Any of these goods, if used for producing, or processing of any goods, or for bringing about any change in any substance, for the manufacture of final product, would be capital goods, and would qualify for MODVAT credit. Then as per clause-b the components, spare parts and accessories of the goods mentioned above, would also be capital goods, and would qualify for MODVAT credit. Then moulds and dies, generating sets, and weigh etc. has four also been held to be eligible for MODVAT credit, even if they are not used for producing the final product, or used for process of any product, for the manufacture of final product, or used for bringing about any change in any substance, for the manufacture of final product. The only requirement is, that the same should be used in the factory of the manufacturer, thus, it was held, that the language is to be interpreted very liberally. Then the contention of the Revenue, about the goods involved, being not satisfying the requirement of capital goods, was negatived on the ground, that it was not the case of the Revenue, set up all through.

9. On the other hand in JP Rewas case the eligibility of credit was denied, which was claimed as "inputs". Then so far as the claim made for MODVAT credit on the basis of it being capital goods, it was denied only on the ground, that in the declaration, it was not so claimed, and the Assessee has not even furnished details of any capital goods for captive consumption, to enable the adjudicating Authority to ascertain, whether such goods were covered by definition of capital goods. Thus, for want of evidence to show, that any part of any electrodes, and gases, was used in the manufacture of any capital goods for captive consumption, the claim was negated.

10. In our view, the Judgment of Honble Supreme Court, in JK Cottons SPG. & WVG Mills Co. Ltd v. Sales Tax Officer, Kanpur reported in 1997 (91) ELT 34 has a 5 material bearing on the controversy involved in the present case. It may be noticed, that the Tribunal in J.P. Rewa case has referred to this Judgment of Honble Supreme Court in JK Cottons case, by reproducing a part of the headnote, but then, the very significant continuing next sentence has been omitted from consideration, in as much as the sentence following the portion quoted by the Tribunal, is as under:

They need not be ingredients or commodities used in the processes, nor must they be directly and actually needed for turning out or the creation of goods

11. In that case the Honble Supreme Court even went to the extent of holding, that use of electrical equipments, like lighting, electrical humidifiers, exhaust fan etc. were also taken to be necessary equipment, to effectively carry on the manufacturing process. Thus, with the above, if the quoted part of the Judgment in JK Cottons case is read, it becomes clear, that the expression "in the manufacture of goods" should normally encompass entire process carried on by the dealer, of converting raw materials into finished goods, where any particular process, or activity, is so integrally connected with the ultimate production of the goods, but for that process, manufacturing, or processing of the goods would be commercially inexpedient, goods required in that process would, fall within expression "in the manufacturing of goods".

12. In our view the proposition propounded above sets the controversy at rest. The question, as framed, is accordingly required to be answered in favour of the Assessee.

13. We are not inclined to accept the logic and reason given in the JP Rewa Plant Millss case, and following the letter and spirit of the JK Cottons case coupled with Jawaharmals case, set aside the Order of the Authorities below.

14. In view of the above discussion, the question so framed, is answered in favour of the Assessee and against the revenue. Resultantly the appeal is allowed. Impugned Order is set aside. The Appellant is held to be entitled to the credit as availed. The notice issued by the Dy. Commissioner accordingly stands quashed, and the proceedings dropped.