V.P. Gulati, Vice President
1. The issue in the appeal relates to grant of Modvat credit in respect of the following 5 items and in respect of which write-up has been given in the appeal memorandum as under:
The “Programmable Logic Controller” as mentioned in your letter comprises of memory, power supply, CPU input chords output chords etc.
In the battery manufacturing process, we assemble paste, bobbin washer into a can and cook the cell at a required temperature for specific time and then other processes follow. Since this assembling is completely automatic, synchronising the timing of receipt of each component in time and at appropriate place is very important without which the machine cannot run and there can be no production from this machine. The subject item PLC controls and regulates the movement of all these components and makes the machine run effectively. As these controls are computerised items like CPU, memory, chrods etc. are inevitable.
We have taken Modvat credit in respect of two Pumps and the functions of these pumps are given below.
“Power Driven Pump” – In our manufacturing process, as explained above, we assemble our intermediary products like Washers, Cans Bobbins at a machine called Cooker and the Cell is cooked in hot water at a specific temperature for required time.
This “Power Driven Pump” is attached to the cooker which regulates the flow of water depending upon the level of water in the cooker without which the inflow of water into the cooker cannot be regulated, controlled.
“Pump” – In out factory we prepare Zinc Chloride Solution of a definite specification in our paste making section which after the process, will be pumped to our mix making section where the Zinc Chloride solution is added to the other mix materials for making mix. This pump is used to pump the Zinc Chloride solution from paste section to the mix making section.
“Air Compressor” – Compressor is being used to manufacture air. Our factory completely runs on pneumatic systems. All Bobbin making machines (ABEs and Stamper) Asphalt Torching System, Extruder, brakes of Drive Systems, Cell Testing machines, Tube Cutting machine, Brake units etc. In a nutshell without compressed air factory cannot run even for a little while.
As explained above, all the materials are used for producing processing of our final products and hence, we are entitled for Modvat credit on all these items.
2. The learned Counsel for the appellants reiterated the use of the items as set out and urged that all these equipments are used integrally in the process of the manufacture of dry cell batteries. He has pleaded that for the purpose of grant of Modvat credit the integrality of the process of manufacture has to be taken into reckoning. He has pleaded that the write-up would clearly show that these equipments are for making the process of manufacture possible and use of these equipments is with reference to particular stages of manufacture and processing in the plant and without the use of the same notified finished product could not have emerged. Therefore, he prayed for allowing the benefit of Modvat credit.
3. Heard Shri S. Murugandi, the learned DR. He has pleaded that use of these items are not integrally connected to the process of manufacture. The use of these items may facilitate manufacturing process and use of these equipments cannot be considered as use in the manufacture of the notified finished product.
4. We have considered the pleas made by both the sides. We observe that for the purpose of Modvat credit what has to be seen is the integrality of operations which are required to be carried out for the purpose of bringing into existence the notified finished product. In the present case, it is seen from the write-up given that each of these items are required at different stages of manufacturing process and without the use of these equipments, it would not be possible to manufacture the notified finished product. Use of these items therefore is a technical necessity. In this connection, the Hon’ble Supreme Court in the case of Indian Farmers Fertilisers Coop. Ltd. v. CCE reported in 1996 (86) E.L.T. 177 (S.C.) while allowing the benefit of exemption notification 187/61-C.E. held that because of the scientific advancement that has taken place to rid the effluents, the ammonia used in the effluent plant is eligible for exemption as the treatment of effluent from a plant is an integral part of the process of manufacture. The learned Counsel has also cited the judgment of the Hon’ble Supreme Court in the case reported in 1991 (55) E.L.T. 444 in which the scope of the term “Process” has been elaborated and which is as under :
13. The natural meaning of the word ‘process’ is a mode of treatment of certain materials in order to produce a good result, a species of activity performed on the subject-matter in order to transform or reduce it to a certain stage. According to Oxford Dictionary one of the meanings of the word ‘process’ is “a continuous and regular action or succession of actions taking place or carried on in a definite manner and leading to the accomplishment of some result.” The activity contemplated by the definition is perfectly general requiring only the continuous or quick succession. It is not one of the requisites that the activity should involve some operation on some material in order to its conversion to some particular stage. There is nothing in the natural meaning of the word ‘process’ to exclude its application to handling. There may be a process which consists only in handling and there may be a process which involves no handling or not merely handling but use or also use. It may be a process involving the handling of the material and it need not be a process involving the use of material. The activity may be subordinate but one in relation to the further process of manufacture.
14. In J.K. Cotton Mills v. ST. Officer, (1965) 1 S.CR. 900, this Court in construing the expression ‘in the manufacture of goods’ held thus :-
“But there is no warrant for limiting the meaning of the expression ‘in the manufacture of goods’ to the process of production of goods only. The expression ‘in the manufacture’ takes in within its compass, all processes which are directly related to the actual production.” The Court further held thus :-
“The expression ‘in the manufacture of goods’ would normally encompass the entire process carried on by the dealer of converting raw materials into finished goods. Where any particular process is so integrally connected with the ultimate production of goods that but for that process, manufacture or processing of goods would be commercially inexpedient, goods required in that process would, in our judgment, fall within the expression ‘in the manufacture of goods’.”
In that case, the assessee carrying on the business of manufacturing textile goods claimed that certain goods namely drawing material etc. were used in the manufacture. The Court said that if the process of designing is so integrally connected with the process of manufacturing of cloth, there is no reason to regard the process of designing as not being a part of the process of manufacture. The process of designing may be distinct from the actual process of turning out finished goods but, there is no warrant for limiting the meaning of the expression ‘in the manufacture of goods’ to the process of production of goods only. The expression ‘in the manufacture of goods’ takes within its encompass all processes which are directly related to the actual production.
16. A process is a manufacturing process when it brings out a complete transformation for the whole components so as to produce a commercially different article or a commodity. But, that process itself may consist of several processes which may or may not bring about any change at every intermediate stage. But the activities or the operations may be so integrally connected that the final result is the production of a commercially different article. Therefore, any activity or operation which is the essential requirement and is so related to the further operations for the end result would also be a process in or in relation to manufacture to attract the relevant clause in the exemption notification. In our view, the word ‘process’ in the context in which it appears in the aforesaid notification includes an operation or activity in relation to manufacture.
5. Taking into consideration, the flow chart as filed by the appellants and. also, taking note of the use of these equipments at each stage to which use is not controverted by the learned DR for the department, we hold that these equipments are used for the manufacture of the notified finished product and Modvat credit in regard to the same is allowable. The appeal is therefore, allowed.