ORDER
S. Kalyanam, Member (J)
1. This appeal is filed by the Collector of Central Excise, Coimbatore and is directed against the order of the Collector of C. Ex. (Appeals), Madras dated 10-7-1989. The respondent is absent and has requested that the matter may be disposed of with reference to records and in the light of the reasoning of the appellate authority in the impugned order.
2. The short question that arises for our consideration in the present appeal is whether the thinners used by the respondent for diluting the paint which ultimately are used in the manufacture of vacuum cleaners would be entitled to Modvat credit under the Modvat Rules. Shri P. Sundararaju, Ld. SDR urged that paint is a manufactured commodity and thinners come into existence thereafter and is merely used to dilute the paint for spraying on an article, such as vacuum cleaners and cannot be construed to be an input in relation to the manufacture of paint of vacuum cleaners.
3. We have considered the submissions of the Ld. SDR and gone through the records. The Finance Ministry by their communication dated 23rd September, 1987 has clarified a similar issue as under :-
(1) Titanium coated mills steel electrodes. - In the specific case cited, cathodes and anodes, used in the electrolysis process are stated to be not consumables and are more in the nature of fixed plant items. The presumption that they will not qualify for Modvat is correct. (2) Thinners. - In the case of admixing of thinners as diluents before spray-painting of component parts of automobiles such thinners would not qualify for Modvat benefit. (3) Paper kraft paper, which is used as interleaving material to avoid scratching of the surfaces of stainless steel sheets would not qualify as an input for grant of Modvat credit. (4) Flushing chemicals, cutting oils, nitrogen. - As regards usage of flushing chemicals, cutting oils and compressed nitrogen as inputs in the manner indicated in your letter, these inputs would appear to be ineligible for Modvat benefit."
The Government of India, Ministry of Finance again by their communication dated 5th April 1988 has considered the question as to whether thinners would qualify for Modvat credit and has taken the view that thinners are classifiable under Chapter 27 of the Central Excise Tariff and by virtue of their composition Modvat credit would not be available. The Ministry in the same instructions has permitted Modvat benefit to Thinners which are classifiable under Chap. 38.14 of the Central Excise Tariff. In the present case the Asstt. Collector has held that thinners would be falling under Chapter 38.14. Further in the present case thinner is only used to dilute the paint for use in spraypainting in vacuum cleaners. Therefore, we hold that in the facts and circumstances of the case thinners used in spray painting vacuum cleaners would be considered to be an input in or in relation to the manufacture of vacuum cleaners for eligibility to Modvat credit. In this view of the matter the appeal is dismissed.
V.P. Gulati, Member (T)
4. I agree with the above view of Learned Member (J). It is seen that after the communication of the Ministry in 1987 the Ministry has further examined the matter and issued subsequent instructions vide F. No. B. 22/32/87-TRU, dated 5-4-1988 and in these instructions the Ministry has opined as under :-
“The matter has been further examined by the Board in consultation with Chief Chemist (CRCL). It is observed that, having regard to the scope of the expression ‘used in or in relation to the manufacture’ of the final product appearing in Rule 57 A of the Modvat Rules, and the nature of the role performed by thinners in paints, the Modvat credit of the duty paid on thinners should normally be available when used in the manufacture of paints. However, where such thinners are classifiable under Chapter 27 of the Central Excise Tariff by virtue of their composition, no Modvat credit would be available. Past cases may be decided accordingly.”
It is seen that the Ministry have accepted the position that in view of the wide amplitude of the words “used in or in relation to the manufacture of final product”, appearing in Rule 57A, the benefit of the Modvat credit in respect of the duty paid on thinners used in paints, except when the thinners fall under Chapter 27, is to be allowed. In the present case as seen from the order of the Learned Collector (Appeals) it has been pleaded that the thinners fall under Chap. 38.84 and is one of the specified inputs under Notification 177/86 dated 1-3-1986 eligible for the benefit of Modvat credit. There is no plea from Revenue that the thinners do not fall under Chap. 38 but fall under Chap”. 27. In that view of the matter the instructions given in Para 2 of the Ministry’s letter supersede the earlier instructions of 23-9-1987 under which it was opined that the thinners would not be eligible for the benefit of Modvat credit. Independent of what has been set out in the Ministry’s instructions we observe that it is clear that thinners in question are clearly used as an additive by way of diluents rendering the paint fit for use in spray painting of vacuum cleaners. It is not the case of Revenue that vacuum cleaners are sold without being spray painted or that these are ready for marketing without spray painting. Spray painting appears to be essential before the product can be put in “the market stream. There is no dispute that the paints by themselves are an eligible item for Modvat credit and thinners falling under Item 38.14 are also one of the eligible inputs. The thinners, when added to the paints as such, do not bring into existence any new product but only make the paint dilute to render it usable for the purpose of manufacture of the vacuum cleaners. The question therefore, that arises is that when a particular eligible input is used in conjunction with another input in relation to the manufacture of the finished product, can that particular product be eligible for the benefit of Modvat credit and covered by the expression “used in or in relation to the manufacture of the final product”. It is not the case of either side that any intermediate product as such is manufactured by the addition of thinners to the paints. If that be not so then the use of the thinners which even otherwise can be used only in admixture with something else have to be considered as in relation to the manufacture of the finished excisable product in question. In that view of the matter we hold that thinners are eligible for the benefit of Modvat credit.