ORDER
K.S. Venkataramani, Member (T)
1. All these appeals arise out of a common order dated 28-11-1991 passed by the Commissioner of Central Excise (Appeals) Allahabad. The brief facts are that the Assistant Commissioner of Central Excise, Mirzapur by an order dated 14-2-1990 denied the Modvat credit on the following inputs while approving their declaration under Rule 57G. The Assistant Commissioner vide order dated 30-4-1990 denied benefit of Modvat credit on the following inputs holding that these cannot be considered as inputs used in or in relation to the manufacture of final products by the appellants, namely Aluminium ingots, billets and products thereof: –
(a) High Chrome Grinding Ball,
(b) Manganese Grinding Ball,
(c) Refral Dip Tube Float,
(d) Refractory Bricks/Refractory Cement,
(e) Asbestos Magnesia & ACC Calundum High Alumina Refractory Cement,
(f) Laboratory Chemicals, and
(g) Cutwell oil.
2. The orders of the Assistant Commissioner have been upheld by Commissioner (Appeals). The ld. Counsel Shri V. Sridharan appearing with the ld. Counsel Shri R. Nambirajan submitted that the High Chrome Grinding Balls are used as a grinding media in the process of grinding bauxite with caustic soda solution. The bauxite is very hard and abrasive. High Chrome grinding Balls are regularly consumed in the manufacture of aluminium. Similarly Manganese Grinding Balls are used as a media for grinding of coal before firing the pulverized fuel into the boiler for generating steam.
3. Ld. counsel relied upon the Tribunal’s decision in the case of Magnetix (India) v. CCE – 1996 (86) E.L.T. 317 and also in the case of Cosmo Ferrites – 1986 (76) E.L.T. 3581. Further reliance was placed on the Supreme Court decision in the case of IFFCO -1996 (86) E.L.T. 177 wherein the Supreme Court has held that raw naphtha used to produce ammonia which in turn is used in off site plants, namely water treatment plant, steam generatiorcplants, inert gas generation plant and effluent treatment plant will be eligible for exemption under Notification No. 187/61. This notification exempted duty in respect of such raw naphtha as is used in the manufacture of ammonia provided such ammonia is used in the manufacture of fertilisers. ld. counsel further explained that the input Refral Dip Tube Float is used to regulate the flow of molten aluminium in the moulds in DC casting for the casting of aluminium billets. The item is used to regulate the flow of molten aluminium in the mould in casting process for casting of aluminium billets. As .for refractory bricks/refractory cement and high alumina refractory, Ld. counsel explained that these are used for lining of various furnaces so as to withstand the high temperature, thermal shock and to act as insulating material so as to conserve heat in the furnace. They are also used to make a paste for lining of transfer of runners and metal runners for casting of slabs, billets and wire rods. Ld. counsel submitted that eligibility for Modvat for these inputs is covered by the decision of the Supreme Court in the case of IFFCO (supra) and also a larger Bench decision in the case of Rama Krishna Steels – 1996 (82) E.L.T. 575 and Union Carbide of India v. CCE -1996 (15) RLT 144 wherein the larger Bench held that the inputs which are used in an indirect process relating to the manufacture of the final product, would also be covered by the term ‘inputs’ as given in the Rule 57A. The ld. Counsel also urged that laboratory chemicals are used for testing of the raw material and at the time of their receipts and also for tests at subsequent stages to ensure that they are according to the specification of the customers and to ensure the emergence of the final product according to the qualitative specification. The Tribunal decision in the case reported in 1995 (77) E.L.T. 302 was cited which according to the appellant would support their case wherein it has been held that such chemicals can be considered to be used in the manufacture of final products for the purpose of exemption Notification No. 13/81. As for the item cutwell oil, ld. counsel stated that this is mixed with water to form a stable milky emulsion for use in running stands for the production of aluminium wire rods. It has to be continuously poured on the final product as it emerges and is, therefore, integral to the manufacturing process.
4. Shri Jangir Singh, Id DR reiterated the reasoning given in the impugned order of the Commissioner (Appeals) and submitted that the inputs in question are either used in the appliances or apparatus or they are not used at all in relation to the manufacture. Therefore, they are rightly held to be ineligible input under Rule 57A.
5. We have carefully considered the submissions made by both the parties. We have also perused the nature of the inputs and the role played by these inputs in or in relation to the manufacturing process resulting in prediction of aluminium ingots, billets and other products. We find that on certain inputs like refractory material there is a specific decision in the Larger Bench of the Tribunal decision of Union Carbide of India (supra) which has specifically held that such material would be eligible input under Rule 57A and the same Larger Bench decision as referred to above has not followed and has overruled the decisions contrary by the Tribunal in the case of Mukund Iron and Steel works -1994 (45) E.L.T. 544 which has been followed in the impugned order by the Commissioner (Appeals) and also the another Tribunal’s decision in the case of Raipur Alloys -1995 (78) E.L.T. 44. Following the Larger Bench decision it is held that these inputs, namely refractory bricks and refractory cement, High alumina refractory cement will be eligible for Modvat credit under Rule 57A. As for the inputs grinding balls, from the explanation of its use, it is clear that the High Chrome Grinding balls are used as media for grinding bauxite caustic soda solution and are, therefore, directly connected with the process of manufacture of the final product. The Manganese grinding ball used as a media for grinding of coal before being used as a fuel in the boiler for generating steam would also be covered by the expression used in relation to manufacture of final product. In this we follow the ratio of the Tribunal decision in Ramakrishna Steel Industries – 1996 (82) E.L.T. 575. The Tribunal held that the expression ‘in relation to the manufacture’ used in Rule 57A is of a very wide import. The Tribunal observed that where raw materials is actually used in the mainstream of manufacture of final product it will certainly be an input used in the manufacture of final product. Doubt may arise only in regard to the use of some articles not in the mainstream of the manufacturing process but in another stream of manufacturing something which is to be used in rendering final products marketable and as are used otherwise in assisting the process of manufacture. The Tribunal held that such doubt is set at rest by the use of the words used ‘in relation to the manufacture’. The ratio of this decision would apply in this case to the inputs like Manganese grinding ball, refral dip tube float. In this connection it may also be mentioned that a ground for denying the Modvat credit in some of these inputs is that they are parts* of the machinery which are excluded. But the Larger Bench in the Union Carbide of India decision (supra) has held that parts of the machinery cannot be excluded and what is excluded is only a complete machinery apparatus equipment appliances etc. mentioned in the explanation under Rule 57A. On these grounds also the denial of Modvat on some goods is not justified. On the laboratory chemicals it is seen that there is no precedent decision directly applicable. The case law cited by the ld. Counsel relates to a case where the subject matter was a customs exemption Notification No. 13/81, and the notification the question considered was whether sodium peroxide imported by the appellants therein for use in connection with chemical test carried out at various stages during the production of the export product charge chrome could be deemed as eligible for exemption in terms of Notification No. 13/81. The notification exempted the consumables required for manufacture of goods in 100 per cent export-oriented industrial unit. The Tribunal considered the terms of the exemption and held that sodium peroxoide which is required for carrying out the test for determination of chromium contained in the raw material, the final product, and the slag at various stages during the production of charge chrome by the appellant therein can be deemed as “consumables required for the manufacture of the goods” viz. charge chrome. Considering this view taken by the Tribunal while interpreting the exemption notification which has a narrower scope than the expression used in Rule 57A, it can reasonably be concluded that under that Rule with its wider ambit, such chemicals as are used by the appellants for testing raw materials at various stages to ensure the marketability of the final products will be eligible for Modvat credit. In the result for the reasons set out above, it is held that all these inputs listed above will be eligible for Modvat credit under Rule 57A of Central Excise Rules. Impugned orders are set aside. The appeals are allowed.