ORDER
K. Sankararaman, Member (T)
1. The appeal before us is by Collector of Central Excise, Calcutta-II whose delay in filing it had been condoned by us earlier. The appeal is directed against the order-in-appeal passed by Collector of Central Excise (Appeals) holding that in respect of oxygen gas and dissolved Acetylene Gas, received by M/s. Hindusthan Development Corporation Ltd., the present respondents, which prior to 1-3-1986 had been utilised by them in the manufacture of bogies and couplers which were cleared on payment of appropriate duty after the said date, they were entitled to avail themselves of the credit and its disallowance by the Assistant Collector was therefore not called for. He, therefore, set aside the confirmation of demand relating to these two items with directions for the grant of relief to the respondents.
2. The present appeal directed against the aforesaid order proceeds on the basis that the order of the Assistant Collector disallowing the credit was in conformity with the relevant provisions of law and the order-in-appeal setting it aside is not legal and proper. The Assistant Collector passed his order based on the show cause notice which raised two issues
(i) Oxygen Gas and Dissolved Gas were received and utilised prior to 1-3-1986 i.e. prior to coming into effect of the Modvat Scheme;
(ii) These were utilised in the manufacture of the intermediate products which were exempted under Notification and not used in the manufacture of the assessee’s finished products viz. Bogies and Couplers.
The Assistant Collector gave a hearing to them before deciding the issue. From a record of the personal hearing enclosed with the present appeal it is seen that the Company had admitted that though these were received during the month of February, 1986 and were not in stock on 1-3-1986, the finished products manufactured out of these were cleared after 1-3-1986. They also contended that they use these goods for making steel castings, the intermediate product for bogies and couplers, the final product. Steel castings are exempted under Notification No. 217/86, dated 2-4-1986. Provisions of Rule 57D of Central Excise Rules, 1944 will be applicable to them.
3. The Assistant Collector’s Adjudication Order No. 33/86, dated 19-11-1986, inter alia, disallowing credit on oxygen and dissolved acetylene gas was, however, based on the limited criterion that these were received and consumed by the assessee prior to 1-3-1986. He accordingly concluded that “they do not merit any credit to be taken for duty paid on them”.
4. The Collector (Appeals) reversed the order of Assistant Collector for the reasons discussed earlier and thereby this present appeal.
5. In the appeal before us, the following points have been raised:
(i) Both the allegations raised in the show cause notice which had been raised were virtually admitted by the assessee in their reply to the show cause notice and during the personal hearing, emphasising however the point that the finished products manufactured were cleared after 1-3-1986.
(ii) The appeal then refers to Rule-57J (relating to utilisation of Modvat Credit on specified raw materials in the manufacture of the specified intermediate products subsequently used for the manufacture of the specified final products) and Notification No. 361/86, dated 20-6-1986 issued under the above-said Rule. The appeal makes it out that the first proviso as well as the second proviso of the said Notification have not been satisfied in the present case by the Company (respondents in the present appeal). It is stated that the first proviso lays down that intermediate products are to be manufactured in a factory as job work. This is not the case here as the steel castings are their own product and utilised by them in their own factory for the manufacture of final products viz. Bogies and Couplers. Regarding the second proviso it is stated that it lays down that no credit shall be allowed unless the intermediate product is accompanied by a Gate Pass or AR, or other relevant documents. Here the “internal product was manufactured by the assessee in their own factory for using in their final products; they were not accompanied by any G.P. etc.” It is stated in the appeal that the conditions made under Rule-57J were not fulfilled and hence Modvat facility was rightly denied. The appeal also wants us to refer to Trade Notice dated 8-6-1988 on the subject issued by the Collectorate issued under Board’s Circular No. 22/88, dated 24-5-1988. It is stated that it has been decided by the Board that when “Oxygen Gas and Dissolved Acetylene Gas are not used in the manufacture of finished goods, rather used as consumables for cutting runners, risers etc. of steel castings, these cannot be said to be used in or in relation to the manufacture of finished product.”
In view of the reasons made out it was submitted that the appeal may be allowed restoring the order of the Assistant Collector and setting aside the order-in-appeal passed by the Collector (Appeals).
6. Arguing the case on behalf of the appellant Collector, Shri M.N. Biswas, learned Senior Departmental Representative referred to the grounds indicated in the appeal and stressed the point that the gases in question were received in February, 1986. The facility is available for inputs received on or after 1-3-1986 or were lying in stock on 1-3-1986. He also contended that the conditions prescribed under Notification No. 351/86 had not been satisfied. He pleaded that the appeal may be allowed.
7. Replying to the contentions of the learned Departmental Representative, Shri S.S. Guha, learned Consultant appearing on behalf of the respondents, M/s. Hin-dusthan Development Corporation, submitted that the Assistant Collector (the original Adjudicating Authority) had not raised Rule 57J in his proceedings. He had only held that the goods had been received and also used before Ist March, 1986. He asserted that they are covered by the provisions of Rule-57D(2) which provides that credit allowed in respect of any inputs shall not be denied or varied on the ground that any intermediate products are exempted from the whole of duty leviable thereon or are chargeable to nil rate of duty provided that such intermediate products are used within the factory of production in the manufacture of final product or which duty is leviable. He referred to the instructions issued by the Ministry of Finance, Department of Revenue to the Collectors vide their letter No. 22-8-1986 TRU, dated 10-4-1986 and handed over a xerox copy of Excise Law Times, 1986-Volume-24-Part-3-Page-T-70, clarifying the point whether credit of duty paid on inputs (on or after 1-2-1986 which are used in final products manufactured prior to 1-3-1986, but cleared on or after 1-3-1986) be allowed to the effect that it is permissible to allow credit in such cases under Rule 57H. It was further clarified that in all cases whether the inputs are/were lying in stock on or received after 1-3-1986 or the final products lying in stock, no credit shall be allowed if duty was paid on the inputs before 1-3-1986. We find that the last mentioned date has been wrongly referred to as 1-3-1986. It should correctly read as 1-2-1986 as in terms of Rule 57H(2) no credit of duty, subject to the exclusion referred to therein, shall be allowed if duty had been paid on the inputs on or before the 31st day of January, 1986. The Learned Consultant then submitted that when the show cause notice issued and the Adjudication Order as well as the appellate order were based on that it is not open for the Department to invoke a fresh provision in the present appeal. He cited the Tribunal’s decision in Rajasthan Spinning and Weaving Mills v. Collector of Central Excise [reported in 1989 (41)-ELT-450.] He also pointed out that the order of the Collector (Appeals) bears the date i.e. 26th March, 1987, but had been issued as late as 9-8-1988 after a delay of more than 16 months. Because of this long delay, the Department seeks to take advantage of the clarification issued by the Department subsequently vide their letter dated 24th May, 1988. Had the order-in-appeal been issued promptly after the Collector(Appeals) had passed the order on, as may be made out from the date of the order, 26th March, 1987, the authority relied upon in the appeal for disallowing credit of duty for Oxygen and Dissolved Acetylene Gases used for cutting runners, risers etc. of steel castings which are then used in the manufacture of the products of the respondents namely bogies and couplers would not have been available. In the circumstances, and in view of the reasons adduced by him, he pleaded that the Department’s appeal be dismissed.
8. We have given our most anxious consideration to the submissions made by both the sides. We find that the reasoning adopted by Revenue in their appeal for justifying the original adjudication of the Assistant Collector by referring to the non-fulfilment of the conditions stipulated in Notification No. 351/76, dated 20th June, 1986 is not correct. This reliance on the provisions of the said Notification has got no relevance to the present issue. As correctly contended by the learned Consultant, this Notification was not at all referred to in the show cause notice and had not been relied upon in the Adjudication Order also which was actually based on a very limited point that the inputs in question had been received and utilised before 1-3-1986. It has also been correctly contended on behalf of the respondents that their case has got better claims to be covered by Rule 57D(2) relating to intermediate products exempted from the whole of duty leviable thereon. Rule 57J and more particularly, Notification No. 351/86, dated 20-6-1986 are applicable to specified inputs used for the manufacture of specified intermediate products which in turn are used for the manufacture of specified final products are relevant for intermediate products manufactured by a job worker. The requirement of a Gate Pass will again be relevant it goods are dutiable and duty is paid. It will be unrealistic to hold it against an aspiring Modvat beneficiary that no Gate Pass has been produced where the intermediate goods are either not dutiable or are exempt from duty. Further, where some facility is available to intermediate goods manufactured by a job worker, which are returned to the original manufacturer for further manufacture into the final products, it would be quite unrealistic to deny similar benefit to a manufacturer who stands on his own legs to manufacture the intermediate goods en route the final products without an intermediary outside job worker. Of course, such a situation has thankfully been taken care of by Rule 57D(2) as has been pointed out to us by the learned Consultant for the respondents. This appears to have been missed by the Department while preparing their appeal while placing a mistaken emphasis on the Notification No. 351/86, dated 20-6-1986 which, as we have discussed already, does not apply to this case. This takes us to the next question whether the steel castings in the manufacture of which it is claimed, Oxygen and Dissolved Acetylene Gas are used, constitute intermediate products in the manufacture of the final products namely Bogies and Couplers, for deciding the applicability of Rule 57D(2) for such inputs. Admittedly, these gases are used for cutting runners, risers etc. of the steel castings. But the Department has held that these cannot be said to be used in relation to the manufacture of the finished products. On this point the learned Consultant has expressed a justifiable grievance that the Department’s reliance on Board’s Circular No. 22/58, dated 24-5-1988 later embodied in Collectorate Trade Notice circulated to Trade would not have been available to them had there not been such an inordinate delay in the issue of the order-in-appeal of more than 16 months. While we are, no doubt, concerned about the said delay we feel that the delay on that score alone cannot invalidate the correct application of the legal position or any interpretation or clarification leading to the same. But then what is the correct position on the question? Whether the gases used in relation to the manufacture of steel castings Which are in turn used in the manufacture of final products like bogies, couplers etc. can be said to be inputs used in relation to the manufacture of such final products themselves or not. This is the moot question now, notwithstanding the Collectorate Trade Notice and the authority therefor, namely the circular of the Central Board of Excise and Customs.
9. The question of intermediate products exempt from duty arising in the course of manufacture of final products and admissibility of credit of duty taken in respect of the inputs used in the manufacture of such intermediate products has been the subject matter of quite a few decisions. Some of them are discussed below:
(i) Titagarh Paper Mills (reported in 1985-ECR-1152)
(ii) Collector of Central Excise v. Sirsilk Ltd. [reported in 1986 (25) ELT 297 (Tri.)]
(iii) Collector of Central Excise, Bombay v. Hindusthan Lever Ltd. (reported in 1984-ECR-2006-CEGAT)
(iv) Nagrat Paints v. Union of India (reported in 1978-ELT-J39-Allahabad)
(v) NGEF Ltd. v. Collector of Central Excise, Bangalore [1985 (22) ELT 705 (Kar.)]
In the Titagarh Paper Mills matter (Sl. No. 1 above) Tribunal held as follows: (at page-1153: Para-4)
“Para : 4 : A raw material is a material that is put into the manufacturing system to help in the formation of the finished product, here, the paper. We can see no logic in the arguments of the Asstt. Collector who says, for example, that lime is used for manufacture of caustic soda and therefore, is not a raw material for paper. But caustic soda is used in bleaching paper pulp. The lime is also used to make bleach liquor. The bleach liquor is again used in the manufacture of paper. The Asstt. Collector’s difficulty seems to be that between the lime and the paper these are intermediate products; that lime as such is not put into the system to manufacture paper. This is a wrong understanding of an input or a raw material. There is no authority to say that an input or raw material must go directly into the finished product. As long as it is consumed and utilised in a way that results or helps in the production or manufacture of the article in which the system is engaged, it is a raw material and is an input for that finished product.”
(reported in 1985-ECR-1152)
The above view was relied upon in the Sirsilk matter by the Tribunal which in addition held inter alia as follows: (Page : 1540)
Para: 9 “Reading the words of the Notification also we are unable to subscribe to the view put forward in the Review Show Cause Notice. The Appellate Collector has drawn support from Rule 56A for the view that he expressed, that the duty paid on inputs could be finally set off on the duty payable on the final manufactured product though the input may have immediately been used for production of an intermediate product which alone later went into the manufacture of the final product. As earlier mentioned, there is nothing in the words in the notification which militates against this interpretation. We are therefore satisfied that the benefit of Notification No. 201/1979 cannot be refused to the respondents with reference to their bought out inputs under T.I.68 merely for the reason that the inputs were used for the immediate production of other intermediate goods (under T.I.68) which alone subsequently went in production of the final manufactured product under T.I.68.”
(reported in 1985-ECR-1536-CEGAT)
In Sl. No. 3 relating to M/s. Hindusthan Lever, the Tribunal held that finished excisable goods means goods produced at the conclusion of the manufacturing process and not any intermediate excisable goods. There the assessee was engaged in the manufacture of soap from ‘vegetable oil’ through the stage of vegetable tallow. The question concerned the utilisation of credit of duty paid in the vegetable oil for the payment of duty on soap, the final product. The intermediate product, vegetable tallow was exempt from duty and the credit facility asked for by the assessee was turned down by the Department on the ground that the finished product made from the oil was tallow, which was exempted from duty. This stand did not find favour with the Tribunal which held as follows:
(reported in 1984-ECR-2006-CEGAT)
(Paras 22 and 23 at page-2015)
“It was argued by the learned counsel that any product that is excisable would be a finished goods and if cleared free of duty as the vegetable tallow was, it would be sufficient to prohibit the exemption from M/s. Hindusthan Lever. If that is so, we cannot understand why the notification does not simply say “any excisable goods”. After all, the factory had not finished with its process when the hardened tallow came out in the process: it was still to manufacture the soap. Only then could the manufacturing process be said to have been brought to a successful conclusion and be said to be finished. To finish is to stop, having come to the end, there being nothing further that needs to be done. If the factory wanted to manufacture vegetable tallow that indeed would be its finished excisable goods because after that, it had no further need to carry on the manufacture, (even if the same tallow, is used by another manufacturer to produce other goods); but for the first factory its production is finished and those goods would be its finished excisable goods. It is not so in this case.
The Hindusthan Lever factory set out to manufacture soap from the vegetable oil, not hardened vegetable tallow, and we cannot, with reason, say that the vegetable tallow was the finished excisable goods it wanted to make. We consider that the use of the words ‘finished excisable goods’ in the proviso was meant to reflect this aim, and not to put impediments as will be the case if any products that may emerge in the chain of manufacture is termed ‘finished excisable goods’. Surely, it was known to the law makers that there are very few cases when a raw material like vegetable oil can be used in the manufacture of goods like soaps, and artificial resins and plastic, and paints, and pigments etc. without other goods being created in the process, goods which, in themselves, would qualify as excisable products.”
As regards Serial No. 4, the Allahabad High Court, referred to the ruling of the Government of India that VNE Oil used in the manufacture of Paints enamels and varnishes even though the intermediate stage of Alkyd Resin is fully exempted from the payment of excise duty leviable thereon and held that it was not open to the Department to say that the assessee was not entitled to the credit in respect of VNE oil merely because the same was converted at an intermediate stage into Alkyd Resin.
In the last of the above-mentioned list of cases (Serial No. 5 supra) the Karnataka High Court had to deal with the question of exemption from duty for electrical stampings used in the manufacture of final products, electric motors. The stampings had to be initially made into diecast rotors before the latter could be used for the manufacture of electric motors. The Department sought to disallow the exemption on the ground that the electrical stampings had been used in the manufacture of diecast rotors which are themselves an excisable item. This stand was rejected by the court who held that the assessee was eligible for the exemption applied for. In other words, it was held that notwithstanding the emergence of an exempted intermediate product namely diecast rotors the starting material electrical stampings was held to be used in the manufacture of final product, electric motors to satisfy the condition of the relevant exemption notification.
10. Applying the above-mentioned series of decisions, it appears that the present case of utilisation of Oxygen and Dissolved Acetylene Gas for cutting of runners/risers etc. of the steel castings needs to be re-examined to decide whether they may be taken to be used in or in relation to the manufacture of the final products namely Bogies and Couplers. It is common ground that the steel castings are manufactured by the respondents which they use for the manufacture of the final products, bogies and couplers. The cuttings of runners, risers etc. are essential for the manufacture of the steel castings. In other words, the steel castings cannot be manufactured without cutting the runners and risers. The respondents have set out to manufacture bogies and couplers and not steel castings. Steel castings are not the finished excisable goods they wanted to make. Their finished goods are bogies and couplers. Accordingly, the two gases in question would definitely be eligible to be considered as used in the manufacture of steel castings. The only inputs which are not eligible for the credit facility under Rule 57A are those described in the Explanation Clause thereunder. Such inputs are machines, machinery, plant equipment, apparatus, tools or appliances etc. used for producing or processing of any goods or for bringing about any charge in any substance in or in relation to the manufacture of the final products. Though these gases are, no doubt, used for producing or processing of the steel castings, they are not in the nature of machine, machinery, appliance etc. specifically mentioned. When any group of goods or items etc. are sought to be excluded in any legal provision, the exclusion will be limited to only those that are specifically mentioned. It is not the same as an inclusion clause where the scope of the concerned provision will not be limited to only the entries specifically listed. These will be illustrative and not exhaustive. Such is not the situation where certain entries are sought to be excluded from a legal provision. Hence we have no hesitation in holding that Oxygen Gas and Dissolved Acetylene Gas being not machines, machinery etc. are actually entitled to be considered as inputs used in the manufacture of not only steel castings, the immediate target for their use but also for the ultimate product namely bogies and couplers. In that view of the matter, we feel that the Trade Notice and its source, the Circular issued by the Central Board of Excise and Customs need a second look by the authorities concerned. We, however, have not had the privilege of even a first look at these references as these have not been annexed to the appeal papers but we are not in agreement with the views attributed to them. Having come to the above conclusion on the second of the two issues raised in the show cause notice, we have to examine the first issue therein which incidentally was the only point which weighed with the Assistant Collector and was applied by them. This, as we have been, however, was not endorsed by the Collector (Appeals) leading to the present appeal before us. In this regard, the learned Consultant for the respondents submitted before us a xerox copy of the instructions of the Ministry of Finance, reproduced in Excise Law Times, June 1986 issued at page T-70. It is clarified therein that it is permissible to allow credit in cases where credit of duty paid on inputs (on or after 1-2-1986) which are used in final products manufactured prior to 1-3-1986 but cleared on or after 1-3-1986. This would definitely help the respondent’s case. This clarification should have been available before the Assistant Collector as it had been issued in April, 1986 whereas he had decided the case in November, 1986. He appears to have been guided by the provisions of Rule 57H(1)(a). This sub-rule requires that the Assistant Collector should be satisfied that the inputs received by a manufacturer before filing a declaration under Rule 57G were lying in stock or were received in the factory on or after the Ist day of March, 1986. Thus, these are two conditions the Assistant Collector is to be satisfied about
(1) The inputs in question should be lying in stock on 1-3-1986;
(2) Alternatively, they are received on or after 1-3-1986;
In the present case, the inputs had not only been received before 1-3-1986 but also utilised before 1-3-1986. Hence they were not in stock on 1-3-1986. Thus, condition 57H(1)(a) is not satisfied but we find that this is only one condition and there is an alternative condition covered by 57H(1)(b) which lays down that such inputs are used in the manufacture of final products which are cleared from the factory on or after the Ist day of March, 1986. This condition is satisfied in the present case. This is what has apparently weighed with the Collector (Appeals). This will also be the reason behind Ministry’s clarification referred to by the Learned Consultant. It would appear to be sufficient for grant of Modvat Facility if condition (b) is satisfied even if condition (a) is not satisfied as both these conditions are separated by the disjunctive “or”. Otherwise, if conditions of the inputs being in stock on 1-3-1986 or received on or after 1-3-1986 were to be an indispensable condition, the two parts (a) and (b) would have been linked by the conjunction “and”. In that case, however, condition (b) would be actually redundant because if inputs were in stock on 1-3-1986 the clearance of the final products would naturally be only on or after that date and it would really not have been necessary to incorporate that condition specifically. The fact that condition (b) is there, could only mean that it is an alternate condition only and it would not be proper to insist on the fulfilment of condition (a) namely inputs being in stock on 1-3-1986 if condition (b) is satisfied. That condition is there only to take care of same situation where condition (a) is not satisfied. Hence we accept the plea of the respondents which is also supported by the clarification issued by the Ministry. In the circumstances, we dismiss the appeal but remand the case to the Assistant Collector of Central Excise, Rishra for de novo adjudication on merits in the light of our observations above. He should also satisfy himself whether the respondents in the present proceedings satisfy the requirements under Rule 57H(2) of the Central Excise Rules regarding payment of duty after 31st January, 1986 unless in respect of such inputs credit was being availed under any Rule or Notification prior to 1-3-1986.