ORDER
R. Jayaraman, Member (T)
1. All the three appeals involve consideration of the same issue. Hence they were heard together and proposed to be dealt with by this common order.
2. The above appeals are against the orders of the Collector (Appeals) as indicated below:
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Appeal No. Order of Collector (Appeals)
impugned.
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E/601/90-Bom. KW/458/90/B-in dated 23-7-1990.
E/737/90-Bom. KW/581/90/B-in dated 26-9-1990.
E/19/91-Bom. KW/636/90/B-in dated 9-11-1990.
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3(1) The common issue in all the three appeals is whether Modvat Credit is admissible in respect of metallic wire netting of Phosphor Bronze and Dryer felt of woollen cloth, which are declared as inputs used in or in relation to the manufacture of paper.
3(2) The appellants filed declaration under Rule 57A declaring inter alia the aforesaid two items as inputs used in or in relation to the manufacture of paper. However, the Department issued a number of Show Cause Notices (reportedly within time limit prescribed) alleging that these items are part and parcel of their machinery and not corelated in relation with the manufacturing process. The Asstt. Collector confirmed the demands for reversal of Modvat Credit, holding that these items are not consumables but are used in removing water from the pulp and in drying as parts of machinery. On appeals before the Collector (Appeals), their appeals were rejected. The Collector (A) has gone through the manufacturing process and held that Wire net is mainly used to carry the layer of pulp to give the required width and to drain out the water content and the felt is used to carry the paper web, to squeeze the paper web through the roller press and further carry it upto the drier. Hence, they are essential parts of machine for processing and for making paper. Hence they are excluded as per explanation to Rule 57A and are, therefore, not eligible for Modvat benefit. On rejection of the appeals by the Collector (A) in the aforesaid three separate orders, the appellants have come up in appeals before us.
4(1). Undisputed factual position regarding the usage of the two items is as below:
(i) Wire net: This is fitted and wound over the rollers of paper making machine, known as Fodineer machine. First, pulp is spread over the wire net so as to form a uniform layer of pulp. Thereafter, it is fitted on the rollers of the machine and during its forward movement water gets drained out. Near the end of the wire net, vacuum boxes are fitted to squeeze out the water content. Thus wet paper is formed at the end of the wire net, which is called paper web.
(ii) Felt : Paper web is thereafter carried by felt as a conveyer belt to squeeze rollers, dryer and calender. Water is completely removed from paper web-carried by felt, which passes through squeezing rollers, dryer and calender.
4(2) Both the items of prescribed specification and quality for paper making, though not supplied with machine by manufacturers of machine, are bought out items and are replaced after a period of usage, depending on the extent of usage on the machine for the above purpose.
5(1) On the basis of the above undisputed factual position, it would appear to us that they are replaceable attachments to the paper making machinery and they are replaced after a period of usage. In the case of such items used as attachments/parts of the machines, we have been taking the view that they are used as parts for the functional operation of the machine and cannot be said to be ‘inputs’ used in or in relation to the manufacture of the product. These are attached as parts of machines for producing or processing of goods and hence would get excluded from the purview of Modvat scheme by virtue of explanation to Rule 57A.
5(2) In a case decided by this Bench in appeals E/631/90-Bom. and E/641/90-Bom. filed by M/s. Poysha Ind. Co. Ltd., (vide our order No. 179-180/91-WRB dated 22-2-1991), we dealt with lithographic plates and rubber blankets used as attachments to printing machine for printing tinplates and ruled out their eligibility for Modvat Credit claimed for use in tin containers. In that decision, we took note of the Southern Bench’s decision in the case of Andhra Pradesh Paper Mills -1990 (50) E.L.T. 252 (Tri.) and also the decision of the East Regional Bench in the case of Associated Cement Co. -1990 (50) E.L.T. 295 (Tri.). Our observations on the approach to be adopted in regard to such items are reproduced in the succeeding para.
5(3)(i) “When an item is claimed as input used in or in relation to the manufacture of final product and this item is used in the machinery or equipment and without usage of the same, final product may not be obtained, it would be necessary to raise the pertinent question viz. whether the item is used in or in relation to the manufacture of the final product or it is used in or in relation to the functioning of the machinery or equipment or for the maintenance or upkeep of the same. If the answer is that the item is used on the machinery for functioning or for upkeep or maintenance, they cannot be said to be inputs used in or in relation to the manufacture of final product, but only as a part for functioning or for upkeep of machinery. There are many such items which we could think of such as rubber belting for conveying, felt rolls for paper making, indl. fasteners, insulated sleeves used in ingot moulds, which get worn out frequently and requiring replacement. Likewise, ramming mass and refractories are required to be applied repeatedly to the furnace for its proper upkeep or maintenance and without which the melting of metal would not be possible. In some of the aforesaid illustrations, case laws are available. In the case of refractories, ramming mass, it has been held by this Bench that they go as a constructional material in the lining of the furnace and they are required for the proper functioning of the furnace and are replaced for their upkeep and maintenance. It was, therefore, held that they cannot be construed to be inputs used in or in relation to the manufacture of the steel casting. [Mukund Iron & Steel Works Ltd. reported in 1990 (48) E.L.T. 552 (Tri.)]. In another case of Mukund Iron and Steel Works Ltd. reported in 1990 (48) E.L.T. 552, it was held that insulated sleeves and graphite stopperhead, which are used only in the ingot mould and they get burnt after the casting is made, could be construed only as fittings in the equipment for a specific purpose and are required to be replaced after each heat and hence modvat credit benefit was not admissible. In the case of Shivaji Works Ltd. reported in 1990 (50) E.L.T. 50, it was held that sand moulds which are in the nature of equipment even though they are of one time use, could not be construed to be eligible for modvat benefit and the chemicals and other items used in the preparation of sand moulds would not be eligible for modvat credit. We also observe that the East Regional Bench in the case of A.C.C. reported in 1990 (50) E.L.T. 370 (Tribunal) held after taking into consideration the Supreme Court’s decision in the case of J.K. Spinning Mills reported in 1985 (16) STC 563 and AIR 1963 SC 1310 that the items which are used for quarrying limestone, plant repair, indl. structures, maintenance, Kiln Lining etc. cannot be said to be items used in or in relation to the manufacture of final product. It was held that these items are used in relation to the maintenance of the machinery and equipment and not used in relation to the manufacture of the final product. The goods used in mining of limestone or maintenance of mining machinery or equipment or likewise are ineligible for modvat credit.
5(3) (ii) From the above, it can be seen that even the East Regional Bench have held that the items which go in or in relation to the manufacture of the machinery or maintenance or upkeep of the machinery cannot be construed to be inputs eligible for modvat credit. In view of the aforesaid position, we deem it necessary that with regard to the items before us, the pertinent question to be asked is, whether the lithographic plates and rubber blankets mounted on two cylinders of the printing machinery could be construed to be inputs used in the manufacture of final product or they are functioning as part of the machinery for the intended purpose viz. printing. Undisputedly, both these items do the job of printing; one as a printing media and another as a transfer media and they only function as parts fitted to the machinery for doing the lithographic printing. They get consumed in that process after one use or a few repeated uses. The question to be looked into is, not whether they get consumed or otherwise. The question is, whether they function as a part of the machine for the intended purpose for functioning of the machine. If the answer is ‘yes’, they cannot be said to be the inputs eligible for modvat benefit. In this view of the matter, we hold that both these inputs fitted to the machinery for performing the job of printing would get excluded and they cannot be said to be input used in or in relation to the final product because they are inputs used in or in relation to the functioning of the machine for doing the job of printing.”
5(4) Based on the above approach adopted by this Bench and also by the Southern Regional Bench in the case of Andhra Pradesh Paper Mills and by the East Regional Bench in the case of Associated Cement Co., we would have been inclined to dismiss this appeal. Moreover, we find that in regard to the very same items, namely wire melting and felt used in paper making, East Regional Bench in the case of Ashim Paper Products 1990 (50) E.L.T. 120 (Tri.), have disallowed Modvat benefit. But we find certain changes in the approach to the same issue by the East Regional Bench in their recent decision in the case of Straw Products reported in 1992 (59) E.L.T. 572 (Tri.). That Bench in the case of Straw Products accepts that their previous decision in the case of Ashim Paper Products by a single member was not a considered one and hence they have accepted certain new arguments of the Ld. counsel for the assessees, which were not considered in their earlier decision. On that basis, they have allowed Modvat benefit for these two items. Hence it has become necessary for us to consider the East Regional Bench’s decision in the case of Straw Products, which is mainly relied upon by the appellants.
5(5) We also note that the revised approach is reflected in another decision of East Regional Bench in the case of Emami Paper Mills – 1992 (61) E.L.T. 489 (Tri.)- The reasoning given in this case being more or less akin to their decision in Straw Products, which we find more elaborate, we have taken up the case of Straw Products to consider whether we can persuade ourselves to adopt this revised approach. But we find certain grey areas left unanswered, on account of which we deem it necessary to place the issue before the larger Bench for a decision.
6(1) We propose to identify the grey areas and set out our views on them.
6(2) One of the main consideration, which weighed with the East Regional Bench for revising their earlier approach is that section notes, chapter notes of the Central Excise Tariff for purposes of classification of goods for Central Excise levy could be adopted for interpreting the terms “machines, machinery, plant etc.”, which are sought to be excluded for Modvat benefit in Rule 57A. The argument that felt is classifiable under Chapter 59 relating to Textiles and cannot be treated as machine or parts of machine which are classifiable under Chapter 84 has been accepted in that decision. We also find that the Calcutta High Court have looked into Tariff classification for interpreting whether Ramming mass could be construed to be machine etc. – vide Singh Alloys and Steel Ltd. reported in 1993 (66) E.L.T. 594 (Cal.). The Calcutta High Court in that case considered the item ‘Ramming mass’ to be a chemical as classifiable under the Central Excise Tariff. The items fitted as attachments on the machines as functional parts were not before them for consideration. That Court have also considered the dictionary meanings of the term “machines, equipments etc.” and were not solely guided by Tariff classification. We deal with this judgment elsewhere in this order.
6(3) Hence the first question to be considered is whether section notes, chapter notes and criterion for classification for levy of C.E. duty could be adopted for interpreting the terms specified in the exclusion clause of Rule 57A?
6(4) On this question, we find that there are certain questions still unanswered which we propose to discuss below.
6(5) The reasoning of East Regional Bench is that even the notification issued under Rule 57A is only in terms of Chapter Headings of Central Excise Tariff and hence they are relevant for interpreting Rule 57A. On going through the Notification 177/86-C.E., dated 1-3-1986 issued under Rule 57A, we find that Chapters 84 & 85 relating to machinery, mechanical appliances, electrical, electronic machinery etc. are specified both as inputs as well as final products. On this basis, can we argue that because these chapter headings are specified as inputs, machines are not hit by explanation to Rule 57A? Instead of detailing all the items by descriptions and making the schedule to notification a voluminous one, for this limited purpose those items are referred in the notification by chapter headings and not by their detailed description. This is what would appear to us to be the plausible reason. For including the Chapters 84 & 85 both as inputs as well as final products, it is to indicate the availability of Modvat Credit on parts of machines or independent machines used in further assembly of machinery, where Modvat Credit can be taken in respect of duty paid on such input machines or parts used in the assembly of final machine. It cannot, in our view, be construed to indicate that when replaceable parts or functional attachments of such machines are brought in for repair and maintenance of machines, they can be extended Modvat benefit, holding these to be eligible inputs used in relation to the manufacture of the final product processed by the machinery. It does not also seem to indicate that Rules of interpretation in section notes/chapter notes and Tariff classification would straightaway be available for interpreting the terms referred to in the explanation to Rule 57A.
6(6) We also had a look at section notes to Section XVI covering machinery chapter. In note 1(e), transmission or conveyor belts of textile material (heading number 59.08) or other articles of textile material for technical uses (heading number 59.09) are excluded from that section. This itself indicates that but for this exclusion, they would have been regarded as parts of machinery. We also find under the same section note 1(n), interchangeable tools and brushes of a kind used for machines are to be classified according to the constituent material of their working part. This clearly indicates that Tariff classification is for purposes of levy of C.E. duty and classification in regard to some parts of the machinery is to be determined based on the constituent material contained in the working part. On this basis, we cannot conclude that felt & wire mesh are not functional parts of paper making machine. Even as per the section notes, they are parts of the machine but for purpose of Central Excise levy, they are to be classified as textile material or Copper article.
6(7) We are unable to agree with the East Regional Bench that since felt and wire net are not figuring in the machinery chapters of the Central Excise Tariff, they would not be hit by the explanation to Rule 57A.
7(1) Another consideration which prompted the East Regional Bench to revise their earlier stand is that parts of machine are not sepcifically covered by the exclusion clause. Though the term ‘machinery’, as per Websters dictionary, is defined as component parts of machines, it is in addition to another meaning given where it refers to any combination of things, the harmonious working of which results in a desired result. Readers Digest dictionary defines machinery inter alia as the working parts of a particular machine and as machines or machine parts collectively. That Bench however held that by identifying the company in which the expression ‘machinery’ has been placed in Rule 57A, the term ‘machinery’ is placed in the company of machine, equipment, appliance, which are complete articles capable of independent functioning and hence has to be construed accordingly. In this context, they have referred to the Gujarat High Court decision in a Sales Tax case – Ambica Wood Works v. State of Gujarat -S.T.C. 1979 (Vol. 43) 338. They have taken into account an observation made by the Gujarat High Court to the effect that some solid structures with no moving parts cannot be termed machinery, but it would be machinery, if such an item complete in itself, has moving parts in relation with others, when they move interdependently by application of force. These observations of the Gujarat High Court on the term ‘machinery’ has been relied upon by the E.R.B. We, therefore, propose to go into the judgment in greater detail. The question which arose for consideration by the Gujarat High Court in that case was whether Wooden tables used for screen printing could be construed as machinery – (part or accessory of printing machine) for purposes of levy of Sales-Tax. The High Court took note of the following factors :
(i) The table removed in loose condition from the factory was affixed to the ground in the screen printing unit.
(ii) It was covered with leather top.
(iii) Metal pipes were fitted to the table for providing heat for drying of printed fabrics.
(iv) Printing was done manually on the table.
In the context of these factors, they took into account the various concepts of machinery. They themselves have observed (relying on the Privy Council’s decision) that there is a great danger in attempting to give a definition of the word ‘machinery’ and hence interpretation must depend on the facts of the case. Hence they proceeded to examine the question before them and came to the conclusion that in the circumstances listed at (i) to (iv) above, these wooden tables are accessories of the machinery, even though there were no other machines attached to that. From the above, it would appear to us that Gujarat High Court decision seems to support the cause of the revenue in this case. Here wire netting and felt of prescribed specifications and quality for paper making are brought in. They are not mobile by themselves like wooden tables considered by Gujarat High Court. But they are for exclusive use for mounting on mobile machines and their function is for processing pulp and producing paper. Hence, wire netting and felt can only be called replaceable attachments to paper machine. They cannot be dismissed as Copper article or textile material because they are classified for excise levy differently. It is also necessary to mention that chapter note itself recognises them as parts but they have been sought to be excluded specifically, because many of the components of this machine are classified as per the material content in the part. (Examples – Rubber washers/gaskets or metallic brushes). Hence, can we read such a criterion into Rule 57A for interpreting the term machine or machinery? However, much we try to go along with E.R.B., we find the stand of E.R.B. not acceptable to us.
7(2) Another argument made in the case of Straw Products decided by the East Regional Bench was that in respect of wire netting and felt, they do not get depreciation allowance under the Income-Tax law and hence they are not machinery. We could not accept this criterion for construing expressions mentioned in the explanation to Rule 57A, because depreciation is allowed for capital goods under the Income Tax law, parts which are replaced, when worn out, need not be given depreciation, since the main capital item is given depreciation. This cannot help us in coming to the conclusion that because depreciation is not given to the expenditure on such item of spares, they are not to be regarded as parts of machinery.
7(3) The East Regional Bench also takes note of the findings of the Southern Regional Bench in the case of Cominco Binani reported in 1990 (48) E.L.T. 283. In that case, the item for consideration was Aluminium sheet used as cathodes in the electrolysis process, where an observation is made to the effect that there is no warrant to read that parts are also covered by the excluded category in the absence of legal basis urged by the Deptt. We have also taken note of this decision, while dealing with the case of Poysha Ind. Co. Ltd. (Supra). We have held that while we agree with the conclusion arrived at by the Southern Regional Bench for extending Modvat Credit for Aluminium sheets used as cathodes in electrolysis process, this observation cannot be taken to be the proposition of law laid down by that Bench. For taking the view, we took note of the S.R.B. decision in the case of Andhra Pradesh Paper Mills and Mysore Kirloskar case vide 1991 (32) ECR 215, where the proposition of law has been set out in distinct and clear terms. But we find that East Regional Bench have held the observation of S.R.B. in the case of Cominco Binani as setting out the position of law. We are unable to share the view for the following reasons :
7(4) In the case of Andhra Pradesh Paper Mills and Mysore Kirloskar, the S.R.B. dealt with the claim for Modvat Credit for items like dandy covers, wire netting and woollen felts. It was held by them that these are parts of paper making machinery and their usage was to make the machines functional for production of paper. They participate in paper making process only as part of the machinery and such parts, which are required for replacement are to be held as used in relation to the functioning of machines and not in relation to the manufacturing of the goods. The detailed exposition of their view on the point of law is found in the above decision and not in the case of Cominco Binani, where a simple observation has been made that there is no warrant to read the parts in the excluded category under Rule 57A. This observation has been made by S.R.B. in the absence of any legal basis urged before them. Hence, such an observation made without considering any arguments on legal basis cannot be taken to be a proposition of law laid down by the S.R.B. in. the case of Cominco Binani.
7(5) The implication of following the ratio of judgment in Straw Product would raise the following question. If parts of machines are held to be not excluded, can we allow much parts to be brought in under Modvat scheme for assembly of machines at the factory and take the duty credit on such parts for utilisation towards the duty payable on final products produced by these machines? The obvious answer could only be ‘no’. Parts of machines will be eligible for Modvat credit and such credit can be utilised only towards payment of duty on machines assembled therefrom. When this is the position, can we allow Modvat credit for replacement spares brought in for upkeep of the machinery? In our view, no such distinction is called for, merely because some spares get consumed frequently. The question to be raised is whether it is brought in as part/attachment for operational need of the machine? If it is so, it goes with the term ‘machinery’ as part and gets excluded under Rule 57A. Some of the machine components are durable, while some may be needing frequent replacement. It is not permissible under the law to hold that spares calling for frequent replacement should not be held as parts but as consumables, while others of more durable nature only can merit to be called parts. In our view, all parts of machines whether classifiable under Chapter 84/85 of C.E.T. or otherwise are sought to be included in the explanation to Rule 57A, especially when ‘machinery’ is specifically mentioned in that explanation. The meaning of machinery extends to parts of machines as well, as is seen from the Readers Digest dictionary and Websters dictionary. This cannot be ignored on the ground of the company of the expression ‘machinery’ with other terms machines, apparatus etc. There is no warrant to presume the meaning of ‘machinery’ by the company it keeps, when the meaning of the term is otherwise clear and is viewed in the context of the above discussions based on the objective behind the explanation to Rule 57A, for excluding items of equipment used for processing or producing the goods.
7(6) The East Regional Bench have also relied upon certain other decisions to hold that any article used in a machine to make it functional is not necessarily a part of the machine. In that context, they seek to rely on the judgment of Karnataka High Court in the case of State of Mysore v. Kores (I) Ltd. -1979 (26) STC 87 Mys. It was held by Karnataka High Court that typewriter ribbon, though functionally essential for operation of a typewriter, cannot be treated as part. We, however, could not persuade ourselves to accept that this case law would meet the present situation. Typewriter ribbon is an independent item used for creating impression on paper. It is akin to paper and carbon inserted for typing. Hence the court have held it to be not a part. But here the items are wire netting and felt, which are mounted to the machine for the specific function of processing the pulp and paper web. Can we apply the law of Kores (I) Ltd. to the present items before us? We find it difficult to accept this analogy for resolving the present dispute before us. The case of Indian Oxygen Ltd. – 1968 (22) STC 476 (Mad.) relied upon by E.R.B. relates to welding electrodes, which were held to be not classifiable as electrical goods. That decision also does not seem to be covering the present dispute. Because welding electrodes are items used for purposes of welding and they were held to be Copper rods, which are used with electric power. On that ground, they cannot be held to be electrical goods. In the present case before us, the item wire net and felt of prescribed quality and specifications are fitted as operational parts of the paper making machine for the specific purpose, for which the machine is intended to be operated. Hence, they cannot be compared to welding electrodes.
7(7) The East Regional Bench have noted that the decisions in the case of Gujarat Alkalies & Chemicals Ltd. reported in 1989 (41) E.L.T. 424 and in the case of Cominco Binani -1990 (48) E.L.T. 283 extend Modvat benefit to titanium metal anodes and Aluminium sheets used as cathodes. Hence, the wire netting and felt also could be construed as inputs. In the case of Gujarat Alkalies & Chemicals Ltd., though titanium metal anode is used in the electrolytic cell as a terminal, it is an essential input for inducing the process of electrolysis to get the disintegration of the chemical compound (Brine solution) to obtain caustic soda. It was, therefore, regarded as an essential input used in the manufacture of caustic soda. Wire netting and felt are brought in for replacing parts of machines and they cannot be compared to the usage of titanium anode. The same is the case of Aluminium sheets used as cathodes in the case of Cominco Binani.
8. With due respect to our learned brothers in the East Regional Bench, despite the detailed and masterly exposition of the provisions by them in the case of Straw Products as viewed by them, we are finding it difficult to see the issue from the angle as seen by them. Hence, these appeals have to be placed before the larger Bench.
8(1) Before we set out the propositions for consideration by the larger Bench, it is also incumbent on our part to take note of yet another development. That is the Calcutta High Court judgment in the case of Singh Alloys & Steel Ltd. -1993 (66) E.L.T. 594 (Cal). Though we have referred to this judgment in para 6(2) above, we deem it necessary to set out certain view points flowing from the judgment. This judgment is in relation to the claim for Modvat credit of duty paid on ramming mass used for lining the furnace frequently and is claimed to be an input used in the manufacture of steel castings. In Mukund Iron & Steel Works – 1990 (45) E.L.T. 84, this Bench held the item as constructional material for lining the inner surface of the furnace, which is an equipment for producing steel. The High Court held it as a product classifiable as chemical as per Central Excise Tariff and even by the dictionary meanings of the various terms specified in the explanation to Rule 57A, this cannot be construed to be anyone of them. We respectfully accept this. But in all humility, we find that certain aspects seem to have been not presented before the Calcutta High Court. Explanation to Rule 57A includes inter alia ‘plant’. In that judgment itself, Calcutta High Court have taken note of the meaning of plant as available in M.C. Graw Hill dictionary as below :
“Plant – The land, buildings and equipment used in an industry.”
Plant is necessary for producing goods. It is used in or in relation to the manufacture of goods. But for its exclusion, it is also an eligible input. Viewed in that context, if cement, bricks, mortar, timber and steel structurals are brought in for erecting the plant, can Modvat Credit be allowed in respect of the duty paid on these items? Mercifully, Central Excise Tariff does not extend to levy on buildings and permanent structures. Furnace is a fitted masonry structure forming part of the steel plant. They are built upon the earth with constructional materials like Refractory bricks, ramming mass etc. Because of the fact that such furnaces are to be heat resistant, they are to be built up of refractory bricks, ramming mass and special types of clay. In the process of manufacture of steel, these constructional materials get worn out because of excessive heat and are, therefore, to be replaced. Hence they are being replaced by relining the inner surface of the furnace. In the case of Mukund Iron (supra), they claimed Modvat Credit of duty paid on refractory bricks and ramming mass as inputs used in relation to the manufacture of steel castings. We rejected this claim holding that they are constructional materials for lining or repairing the furnace and hence they are to be regarded as constructional materials for maintenance of the steel plant and not inputs for manufacture of steel castings. We also observe that under Chapter 69 of the Central Excise Tariff, Ceramic/refractory bricks/blocks are referred to as constructional goods. They are not classified as machinery or plant. All the same, when these constructional goods are brought in for building or for repairing furnace or for building a furnace, they go to make a part of the industrial plant, which is not liable to excise duty and such a plant is also specifically excluded from the purview of the term ‘inputs’ in Rule 57A. Can we ignore this position, holding it to be only brick classifiable under Chapter 69 or in the case of ramming mass – being a chemical not classifiable as machinery? In the Mukund Iron and Steel case, we took note of the fact that paint is an eligible input but if paint is used for painting the structures and machines in the plant, it can be said to be used only for upkeep and maintenance of the plant and cannot be said to be an input for the final products turned out in that plant. This aspect of the situation does not appear to have been considered by that Court. We would have been enlightened, if this aspect of our observation had been commented upon by that Court.
8(2) The decisions of the Supreme Court in the case of East End Paper Industries -1989 (43) E.L.T. 201 (SC) is relied upon by the Calcutta High Court. In that case, the Apex Court did not have any occasion to consider the eligibility of Modvat Credit in the context of exclusion clause under Rule 57A. The proposition that any item going in the integrated process of manufacture upto the stage of marketing can be construed to be used in the final product is a general legal proposition laid down by the Apex Court.
8(3) But when the Apex Court came to consider the question of treating paper core for winding paper, in the case of Straw Paper Mills -1989 (43) E.L.T. 178 (SC), they held that such cores can be allowed set-off in terms of Notification 201/79 only when paper is marketed in the form of rolls and it cannot be treated as component for paper cleared in sheets/reams. The Apex Court held as below:
“Use of paper core is necessary for rewinding of paper if it is delivered to the consumer in rolls and would come within the purview of the expression ‘any process incidental or ancillary to the completion of manufactured product’ used in the definition of the term ‘manufacture’ in Section 2(f) of the Act and for the same reason paper core would also be constituent part of paper and would thus fall within the term component part used in the notification, in so far as manufacture of paper in rolls is concerned. Paper core, however, cannot be said to be used in the manufacture of paper in sheets as component part”.
[emphasis applied]
8(4) From the above, we are led to believe that the Apex Court, held such paper core as an input for paper, only where paper is cleared on rolls but to treat it as an item akin to iron rollers attached to machine for rewinding paper, where paper is cleared in the form of sheets. Being part of machine, such cores were construed to be ineligible for the benefit under Notification 201/79. Hence, we feel that had the decision of the Apex Court is Star Paper Mills case been placed before the Calcutta High Court, the views of the court might possibly have been different. In any case, as we have observed in para 6(2), Calcutta High Court have not placed reliance only on Tariff classification for interpreting the term in Rule 57A; they have also considered the dictionary meaning of the term. Hence, the legal position enunciated by E.R.B. in the case of Straw Products to the effect that Tariff classification holds the key for interpretation of the term in Rule 57A cannot be said to have acquired approval by the Calcutta High Court in Singh Alloys case.
9. Thus viewed from the decision of Supreme Court in East End Paper Industries read with their decision in Star Paper Mills case, we are unable to persuade ourselves to revise our consistent approach, based on the arguments advocated before the East Regional Bench. On the contrary, the consistent approach so far adopted by us including the earlier view of the East Regional Bench appears to be in line with the approach of the Apex Court and does not call for modification.
10. In view of our disagreement with the views of the E.R.B. on the very same issue, we direct the Registry to send the papers to the President with a request to constitute a larger Bench for deciding on the following issues :
(i) Whether rules of interpretation in section notes and chapter notes meant for classification of excisable goods for levy of duty could be safe and reliable basis for interpreting the terms specified in Rule 57A for excluding them from the scope of the term ‘inputs’
(ii) Whether in the absence of specific exclusion of ‘parts’ of machines, such parts brought in for attachment to machines could be construed to have been included as inputs for purposes of Rule 57A?
(iii) Whether the ratio of the decision of the East Regional Bench in the case of Straw Products could be accepted for deciding this appeal?
11. Before parting with this reference to larger Bench, we are to mention that identical issues have already been referred to the larger Bench by us (vide Order No. 447/93-WRB). While hearing these appeals, the aforesaid case of Divecha Glass Industries may also be listed before the larger Bench.