ORDER
Jyoti Balasundaram, Member (J)
1. The above stay application arises out of the order of the Collector of Central Excise (Appeals), Allahabad confirming the order of the Adjudicating authority of denial of Modvat credit to the tune of Rs. 18,28,227/- on account of duty paid on refractory bricks for the period February to March, 1990 on the ground that the items are not inputs for the manufacture of aluminium but are parts of equipment or plant and machinery as they are used as furnace repairing material.
2. The learned Counsel for the applicants Shri V. Sridharan contends that as the items are used for lining of various furnaces namely melting and holding furnaces, anode backing furnaces etc. and their main purpose is to withstand high temperature for conservation of heat within the furnace, they are essential ‘inputs’ within the wide meaning of that expression in Rule 57A as they are admittedly used ‘in relation to the manufacture of aluminium. In support of his argument, he cites the judgment of the Hon’ble Calcutta High Court in the case of Singh Alloys & Steel Limited and Anr. v. Assistant Collector of Central Excise, Durgapur Steel Division, 1993 (66) E.L.T. 594 (Cal.) which has been followed by the Larger Bench of the Tribunal in the case of A.B. Tools wherein the benefit of modvat has been extended to dolopatch mix magnesite peas and ramming mass used in the manufacture of steel ingots and submits that the same benefit should be made available to refractory bricks which serve the same purpose i.e. of reduction of erosion of the refractory lining of the furnace. He also highlights the fact that the High Court has specifically overruled the Tribunal order in the case of Mukund Iron & Steel Ltd. v. Collector of Central Excise – 1990 (45) E.L.T. 84 holding that refractory bricks were not eligible for Modvat credit. He therefore, seeks waiver of pre-deposit of the duty demand and stay of its recovery pending the appeal.
3. The learned DR Shri Bhartiya submits that the Refractory bricks are an integral part of a furnace and are only parts of equipment/plant and * machinery as they are used to protect the furnace. They are essential for the upkeep and maintenance of the furnace and do not themselves take part in any process directly relating to manufacture of aluminium and therefore, Modvat is not available thereto, in view of the order of the Tribunal in the case of Mukund Iron & Steel Ltd. v. Collector of Central Excise (supra). According to him, the judgment of the Calcutta High Court (supra) only relates to eligibility to Modvat credit to chemicals such as ramming mass and not to refractory bricks which are ceramic products falling for classification under Heading 6901.10 of the CETA 1985. He cites the order of the Tribunal in the case of Alembic Glass Industries v. Collector of Customs reported in 1993 (67) E.L.T. 542 to support his plea that refractory bricks are integral part of the furnace and the Tribunal has extended the benefit of Notification No. 242/76-Cus. to refractory bricks imported for replacement in the regenerator which is a periodic heat exchanger forming an essential part of industrial furnace. He therefore, prays for rejection of the application.
4. On hearing both the sides and carefully considering their submissions, we are of the view that the applicants have made out a strong prima facie case for waiver in view of the judgment of the Hob’ble Calcutta High Court in the case of Singh Alloys & Steel Ltd. The High Court has held as follows :-
“It is not disputed that Ramming mass and dolopatch mix have been classified as miscellaneous chemical products under Chapter 38 Heading 3816.00 of the Schedule to the Central Excise Tariff Act, 1985. Magnestie peas have been classified under Heading No. 28.20 of the Schedule to the Tariff Act which deals with Manganese oxides. Heading No. 28.20 is under Chapter 28 which deals with inorganic chemicals, organic or inorganic compounds of precious metals, or rare earth metals of radioactive elements or of isotopes. These three items are used when ingots are manufactured. It is the admitted case that these items are first charged into the furnace as fettling materials. The items dissolve and seal the crevices in the refractory walls of the furnace to prevent leaking of the liquid metal from the furnace and to reduce the erosion of the refractory lining of the furnace. The items lose their identity and are consumed in the process. Some part of the items remain in the liquid metal which forms the ingot and the balance forms part of the residue or slag.
The ingots can be manufactured in the furnace without these items. There would then be a possibility of the furnace being damaged and more down time would be required resulting in loss of productivity.”
The Court further held as under :-
“As far as the merits of the case are concerned, there is no dispute that the items in question are inputs within the meaning of the explanation to Rule 57-A but according to the respondent authorities the items come within the excluded items. It is said that the items in question form part of the machinery because they are really used to protect the machinery and not for the manufacture of the ingot itself.
In the case of Satya Steel Strips (supra) the Tribunal held that the ramming mass was used to coat the bricks with which the furnace was lined in order to withstand the degree of heat in melting iron. This being so, according to the Tribunal, ramming mass was essentially a part of the furnace and would therefore, be in the nature being part of the machinery/equipment used for producing the final product.
Similarly, in the case of Mukund Iron (supra) the Tribunal held that the items were more in the nature of structural material required for lining the machines and equipment than in the nature of material fed into the furnace for chemical reaction or for improving the quality of steel making. The Tribunal held that the items were not consumable inputs in the manufacture of steel but were really a part of the machinery and as such excluded from the definition of inputs. It was stated that the items cannot be said to be taking part in the chemical process in steel manufacturing but were used for the maintenance of the machines or for making the machine operational. The third decision relied upon by the respondents at the hearing is Mukand Iron & Steel Works Ltd. v. Collector of Central Excise – 1990 (48) E.L.T. 552. The Tribunal followed its earlier decisions and rejected a claim to Modvat benefit in respect of the items.
In my view, in all three cases, the Tribunal has committed an error in interpreting the definition of inputs in the explanation to Rule 57A. The question which should have been raised by the Tribunal was – Are the items inputs at all in respect of steel ingots ? If the answer to this question is in the affirmative, the next question should have been are the items within the excluded items? The definition of inputs is, as already seen, a very wide definition. There can be no disputs that the items are used in relation to the manufacture of steel ingots. In fact the Tribunal in the case of Mukund Steel (1990 (45) E.L.T. 84) said that it was not disputed that the items were required for the manufacture of steel. The answer to the first question posed above therefore is in the affirmative.
The next question is, are the items plant, machine, machinery, appliances etc.? In my view, they are not. The items certainly do not come within the dictionary meaning of machines or machinery or instruments or appliances. The items are chemicals and have been classified as such in the Tariff Act. Merely because chemicals, are used for the machinery do not make the chemicals machinery. It does not matter that the items are used in the machinery or for purpose of the machinery. To repeat the only relevant question is are they used in or in relation to the manufacture of ingots.”
“None of these definitions would include items like chemicals such as the items in question. It may be noted that as far as the Tariff Act of 1985 is concerned, plant, machinery machines, equipment, apparatus, tools and appliances are all classified under Headings and sections which are totally different from the Headings and Sections under which the items are classified.
The Tribunal has erred in seeking to limit the meaning of the word ‘inputs’ to those items which go into the steel ingot completely overlooking the phrase ‘in relation to ‘ in the definition in the major clause of the explanation.
The respondents then argued that steel ingots could be manufactured even without the items. That may be so, but that is immaterial. The definition of inputs is not dependent upon what ought to be used but what is in fact used. There is no dispute that the petitioner No. 1 had in fact, used and uses the items in the manufacturing of ingots. The Supreme Court has also held that manufacture would include a process which was commercially expedient in the production of goods (See – Collector of Central Excise v. East End Paper Industries – 1989 (4) SCC 244; Collector of Central Excise, Jaipur v. Rajasthan State Chemical Works (AIR 1991 SCC 2222). That the process in question is commercially expedient has not been doubted.”
5. From a reading of the above, it becomes clear that the only relevant questions for determination of eligibility to Modvat are whether the items are used in or in relation to manufacture of ingots and are hit by the exclusion clause. There is no disputs that refractory bricks are used in relation to the manufacture of aluminium. The fact that the items in dispute in this case are classifiable as ceramic products under Heading 6901.10 does not alter the material fact of their usage in relation to manufacture of the final product. Therefore, prima facie there is great force in the contention of the learned Counsel for the applicants that the reasoning of the High Court in relation to Misc. chemical products like Ramming mass is equally applicable to refractory bricks, particulary in view of the specific over-ruling of the Tribunal’s order in the case of Mukund Iron & Steel Ltd. 1990 (45) E.L.T. 84. The learned DR has also not been able to establish that the use to which refractory bricks are put namely for protecting erosion of the furnace, is in any way different from the use of ramming mass in a furnace for prevention of leakage of liquid metal from the furnace and to reduce erosion of refractroy lining of the furnace. We also note that ramming mass and refractory bricks are in the nature of consumables and are prima facie not parts of the furnace. In the light of the above discussion, we hold that the applicants have made out a prima facie case and accordingly dispense with the requirement of pre-deposit of duty and stay recovery thereof pending the appeal.
Sd/-
(Jyoti Balasundaram)
Dated : 12-6-1994 Member (J)
Shiben K. Dhar, Member (T)
6. With respect to learned Member (J) I differ from the conclusions arrived at in the order.
6.1 Hon’ble Calcutta High Court in case of Singh Alloys & Steel Limited and Anr. v. Asstt. Collector of Central Excise, Durgapur Steel Divn. reported in 1993 (66) E.L.T. 594 (Cal.) dealt with specifically the case of ramming mass. In referring to approach adopted by Tribunal in case of Mukund Iron & Steel Ltd. v. CCE- reported in 1990 (45) E.L.T. 84, the Hon’ble Court observed that once it was held that the input in question was used in or in relation to the manufacture of steel, the question to be looked into should have been whether this input is covered by any of the categories in the exclusion clause. In other words, having held that the input in question was in fact an input in relation to the manufacture of final product, it should have been looked into whether such input still stood excluded from the benefit of Modvat for the reason of being apparatus, appliances, equipment, machine, machinery, plant and tool. It was in this context that Hon’ble Court referred to nature of ramming mass. The Court observed that it was not disputed that ramming mass was classified as miscellaneous chemical products under Chapter 38 of the Schedule to the Central Excise Tariff Act, 1985. These items, the Hon’ble Court held, are first charged into the furnace as fettling materials. The items dissolve and seal the crevices in the refractory walls of the furnace to prevent leaking of the liquid metal from the furnace and to reduce the erosion of the refractory lining of the furnace. The items lose their identity and are consumed in the process. Some parts of the items remain in the liquid metal which forms the ingot and the balance forms part of the residue or slag.
6.2 Considering the nature of ramming mass and manner it is used in relation to manufacture of steel, the Hon’ble High Court of Calcutta held it could not come under any of categories in exclusion clause to Rule 57A. The Hon’ble Court in my view did not overrule Tribunal’s order in case of Mukund Iron and Steel Co. (supra) but only referred to the wrong approach adopted in “? that order in determining the admissibility of Modvat. The approach, the Hon’ble Court held, should have been first to determine whether the product in question is used in or in relation to the manufacture of finished products and, thereafter, to ascertain, if the answer is affirmative, whether it is covered in any of the categories of the exclusion clause. No finding as such was given in regard to refractory bricks.
7. The refractory bricks are structural products and form part of the furnace. Electric arc furnace cannot function without refractory bricks which are used as lining. If such bricks are used in or in relation to the manufacture of steel ingots, they are so used only as part of the furnace. Ld. JDR during the course of arguments submitted that such refractory bricks are classified under Tariff Item 69 as ceramic goods and Tribunal in the case of Alembic Glass Industries reported in 1993 (67) E.L.T. 542 held such bricks as parts of industrial furnace.
8. Considering that refractory bricks are different from ramming mass, I am of the view that the ratio of judgment of Hon’ble Calcutta High Court in the case of Singh Alloys & Steel Ltd. v. Asstt. Collector of Central Excise, Durgapur Steel Division reported in 1993 (66) E.L.T. 594 (Cal.) cannot be, prima facie, applied for allowing Modvat in the case of refractory bricks. Whether or not Tribunal’s order in case Mukund Iron and Steel Co. (supra) has been overruled by Hon’ble Calcutta High Court will need the detailed examination which can be taken up only at the time of regular hearing. At this stage, the appellants have not succeeded in making out prima facie case on merits in their favour. The case also does not involve any financial hardship. The application for waiver of per-deposit of duty and stay of recovery proceeding is rejected.
Sd/-
(Shiben K. Dhar)
Dated 14-6-1994 Member (T)
In view of difference of opinion between the two Members, the following question is referred to the Hon'ble President for resolution by a third Member :-
"Whether the pre-deposit of duty is to be waived and recovery stayed as proposed by the Member (Judicial) or the stay application is to be rejected as proposed by Member (Technical)?"
Sd/- Sd/-
(Shiben K. Dhar) (Jyoti Balasundaram)
Dated : 28-6-1994 Member (T) Member (J)
P.K. Kapoor, Member (T)
9. On the point of difference referred to me, I have heard both sides. Appearing on behalf of the applicant, Shri Nambirajan, Learned Advocate submitted that the refractory bricks was not an item covered by any of the category in the exclusion clause under Rule 57A. He argued that refractory bricks used for lining of various furnaces meant for manufacture of steel have to be deemed as ‘inputs’ as they require constant replacement and get consumed. He contended that Modvat credit on such refractory material is admissible on the ratio of the judgment of the Calcutta High Court in the case of Singh Alloys & Steel Limited and Anr. v. Assistant Collector of Central Excise, Durgapur (supra) which had also been followed in the Larger Bench decision of the Tribunal in the case of Collector of Central Excise, Chandigarh v. M/s A.B. Tools Ltd. Learned Counsel further submitted that in two other matters following the Calcutta High Court judgment in the case of Singh Alloy & Steel Limited, the Tribunal had stayed recovery of the duty in respect of refractory bricks vide order No. S/116-117/95-NRB in the case of Rathi Ispat Limited v. Collector of Central Excise Meerut and Kusum Ingots & Alloy Ltd. which was referred to in para 2 of the said order passed in the case of Rathi Ispat Limited v. Collector of Central Excise, Meerut.
10. On behalf of the Revenue, Shri K.K. Dutta, JDR submitted that the Calcutta High Court judgment in the case of Singh Alloy & Steel Limited and the Tribunal’s order Nos. 229-230/94-NRB in the case of Collector of Central Exise, Chandigarh v. M/s A.B. Tools Ltd. were specifically in respect of Ramming Mass which is in the nature of a chemical and the ratio of those decisions would not apply to refractory bricks. He contended that under these circumstances in terms of the decision of the West Regional Bench in the case of Mukund Iron & Steel Ltd. reported in 1990 (45) E.L.T. 84 Modvat credit on refractory bricks which are parts of furnaces would not be admissible. He therefore pleaded that the order recorded by the Member Technical may be concurred with.
11. I have considered the submissions made on behalf of both sides. I find that refractory bricks are not akin to ramming mass which being in the nature of chemical was held as not covered by the categories of items excluded from the definition of ‘inputs’ for the purpose of Rule 57A by the Calcutta High Court in the judgment in the case of Singh Alloys & Steel Ltd. which was also followed by the Larger Bench of the Tribunal in the case of Collector of Central Excise, Chandigarh v. M/s A.B. Tools Ltd. Hence, it appears that there is sufficient force in the contention of the learned Member Technical that the judgment of the Calcutta High Court in the case of Singh Alloys & Steel Ltd. cannot be deemed to have overruled the decision of the West Regional Bench in the case of Mukund Iron & Steel Ltd. in which refractory bricks were held as not eligible for Modvat credit. However, having regard to the subsequent stay Order Nos. 116-117/95-NRB in the case of Rathi Ispat Ltd. v. Collector of Central Excise, Meerut and also in the case of Kusum Ingots & Alloy Ltd. in which the judgment of the Calcutta High Court in the case of Singh Alloys and Steel Ltd. was taken into account, it has to be held that the matter is contentious and the applicants do have a prima facie case on merits in their lavour and therefore I am inclined to agree with the learned Member Judicial that having regard to the overall facts and circumstances of the case the pre-deposit should be waived and recovery stayed pending the disposal of the appeal.
Sd/-
(P.K. Kapoor)
Dated 28-3-1995 Member (T)
In view of the majority opinion the pre-deposit of duty is waived and recovery stayed pending the appeal.
Sd/-
(Jyoti Balasundaram)
Dated 24-4-1995 Member (J)
N.B.
The Tribunal has since, vide its majority decision in its Final Order No. A/129/95-NRB, dated 21-2-1995 in case of CCE, Indore v. M/s Raipur Alloy Steel held that Modvat credit is not admissible on fire-bricks.
Sd/-
(Shiben K. Dhar)
Member (T)
Dated 8-5-1995