ORDER
G.R. Sharma, Member (T)
1. M/s. Hyderabad Industries Ltd. have filed this appeal against the order of Collector, Central Excise (Appeals). The Collector in his order had held :-
“I find that the appellants are admittedly manufacturing thermal insulation blocks. Irrespective of the size in which it is finally sold the product in all cases contains the identity of thermal insulation block on completion of the manufacturing process. Therefore, at that stage itself they become the final as well as the finished product. But cutting standard sized block of 900 mm X 600 mm into smaller sizes whenever required by any particular customer neither the identity nor the stage of finish of the manufactured product gets changed. It is a well settled law that by merely cutting a fully manufactured product into smaller sizes, the nature of the product does not change. Irrespect of the size these are purchased sold and known in the concerned trade as thermal insulation blocks. The appellants are also admittedly entering the product in RG I register on completion of the manufacture itself. If their view has to be accepted, it would mean that further manufacturing process is involved in converting thermal insulation blocks of standard size into smaller sizes. As already pointed out above, this view is not legally sustainable. Cutting of the blocks to small sizes is also not a process incidental or ancillary to the completion of the manufacturing process. The product has already been manufactured in its final and finished form and no further manufacturing is involved in cutting them into smaller sizes. I am, therefore, unable to agree with the appellants’ contention in this regard. The view of the Assistant Collector is sustainable in law and on facts. The appeal accordingly lacks merits and is rejected.”
2. Briefly stated the facts of the case are that M/s. Hyderabad Industries Ltd. are manufacturers of thermal insulation products. During the course of conversion or reclamation of slabs or blocks of standard size into smaller sizes as per the requirements of the customers, certain breakage occur. The appellant had applied for destruction of these breakages. The Assistant Collector after examining the issue observed that the appellant was manufacturing slabs and blocks of standard size and was entering the same in their RG-I records; that these slabs and blocks are marketable in the form in which they were manufactured; that to meet certain specific requirement of the trade they were further converting some of these blocks of standard size into smaller sizes. In the process of conversion some wastages and breakages occurred. The Assistant Collector held that the manufacture of refractories is complete as soon as they obtained slabs and blocks of standard sizes and that all the operations beyond this stage are optional and cannot be treated as a part of the manufacturing process. It was also held by the Assistant Collector that Rule 57D of the Central Excise Rules, 1944 only makes provisions for the wastages arising during the course of manufacture of the product and not in operation subsequent to the manufacture and therefore the Assistant Collector held that Modvat credit was not available to the appellant on the breakages and wastages.
3. Shri A. Lal, the ld. Consultant appearing for the appellant submitted that the Hon’ble Supreme Court in a number of cases had held that making goods marketable is a process of manufacture; that in the case of the appellant blocks of standard size sometimes need conversion into slabs and blocks of smaller sizes. In the process of this conversion and cutting, some wastages invariably arise. As the goods become marketable only after cutting them to the specific sizes as ordered by the customers therefore invariably this cutting into smaller sizes is a process of manufacture for making the goods marketable. He cited and relied upon the ratio of the judgment in the case of CCE v. MRF Ltd. reported in 1993 (65) E.L.T. 540 (Tri.). In paras 3 and 4 the Tribunal had held that:-
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Submitting that their case was fully covered by the ratio of the judgments, the ld. consultant also referred to various Trade nonces and submitted that the goods reached RG 1 stage, the moment they are identifiable as goods and that there is no prohibition in the Rule that once the goods have reached the RG 1 stage or entered in RG 1 register cannot be further subjected to certain processes which may amount to manufacture; that the process of cutting and conversion of bigger slabs and blocks into smaller ones for making them marketable invariably is a process of manufacture and that this view was upheld in a number of decisions of the Hon’ble Supreme Court.
4. Shri B.D. Bhagat, the ld. JDR appearing for the respondent submitted that the goods were fully manufactured when they were entered in the RG-I register; that any process of cutting or conversion of fully manufactured goods does not amount to the process of manufacture; that the goods were fully marketable when they were of standard size and slabs. Reiterating the findings of the lower authorities, the ld. JDR submitted that the lower authorities had examined these issues meticulously and had come to the correct decision.
5. Heard the submissions of both sides and considered them. The only short dispute is whether cutting blocks of Thermal Insulation material into smaller size to make them marketable or according to the specifications of the buyer amounts to manufacture or not. There are a number of judgments of the Hon’ble Supreme Court that marketability is one of the test for deciding the question of manufacture or a process in relation to the manufacture of the goods. In the case before me, I find that the running blocks are being cut to size only to make them marketable and, therefore I am inclined to hold that the process of cutting the running length block of thermal insulation material is a process of manufacture and any waste arising in this process shall be governed by the provisions of Rule 57D(1) and hence, denial of Modvat credit on the waste cleared for destruction at NIL rate of duty is not justified in law. Accordingly, the Modvat credit will be available to the appellant. The appeal is allowed in these terms.