ORDER
V.P. Gulati, Member (T)
1. These are appeals against the order of the Collector of Customs & Central Excise (Appeals), Madras, dated 30-3-1988.
2. The short point to be decided in the appeal is whether the inputs used in the making of sand moulds which are used in turn for making the castings can be taken to be inputs having been used in the manufacture of steel castings for the purpose of availing MODVAT credit under Rule 57A.
3. The learned lower authority has held that inasmuch as the inputs used in the manufacture of sand moulds are concerned these are to be taken to have been used in relation to the manufacture of sand moulds, which have to be considered as in the nature of equipment or apparatus which are specifically excluded from the purview of the MODVAT credit in terms of Rule 57A. The findings of the lower authority in the impugned order are as under:
“If the result of manufacture, with the inputs, is machinery, equipment, appliance etc. then such inputs cannot be said to be used in the making of steel castings. Machinery, plant, equipment, appliances etc. are not covered by the word ‘input’ used in Rule 57A of the Central Excise Rules. Appellants have stated that sand mould is not an equipment, because it is not used repeatedly in making of steel castings. This contention is not correct. Equipment need not be for repeated use, in manufacturing the finished product. The dictionary meaning of the word “equipment” as per Concise Oxford Dictionary is “provide (oneself with) for journey etc., – hence equipment.” The word ‘Appliance’ means “thing applied as means to an end”. Thus, the sand mould, is both an equipment snd more appropriately an appliance. The casting is made with application of such sand moulds. The inputs brought, duty paid, and used in making an equipment or appliance cannot be said to be used in or in relation to the manufacture of the final or finished product by the appellants.”
4. The learned C.A. for the appellant pleaded that the appellants had brought in specified inputs in their factory in which they are manufacturing castings. For the purpose of making the castings, he pleaded, the sand moulds are first required to be prepared and in the manufacture of these sand moulds the inputs in question have been used. He pleaded, the sand moulds should be taken as an intermediary product in the manufacture of castings and the benefit of the input credit available in respect of the castings should be allowed. He pleaded that the sand moulds prepared are used only once and after the casting is formed the same gets destroyed. He pleaded the mould cannot be treated as ‘tool’. He further pleaded that the sand moulds were not chargeable to duty being exempted. However, he pleaded, notwithstanding this in terms of Rule 57D, under which when specified inputs are used for the manufacture of the intermediary products, which are exempt from duty, the benefit of MODVAT credit is available and the appellants’ plea for benefit will have to be allowed. He pleaded that RT.12 returns were filed and the credit on the inputs taken was shown in that and which was disallowed.
5. The learned Senior D.R. pleaded that the plea regarding Rule 57D has been taken by the appellants for the first time before the Tribunal. In any case, he pleaded, the sand moulds are a product which by itself stands precluded from the benefit of the input credit relief as provided under Rule 57A and, therefore, the products which go into the making of the same are not eligible for the benefit of the MODVAT credit. He pleaded that the moulds cannot be treated as an intermediate product as they do not emerge in the process of the manufacture of casting. He pleaded that the appellants had filed separate classification list for sand moulds and had also filed RT.12 returns for the moulds separately, thus showing that the sand moulds are separate category of goods and the credit eligibility has to be with reference to the moulds and in case the appellants are not eligible for the MODVAT credit in respect of the moulds, the claim of the appellants for MODVAT credit cannot be allowed. In this connection he cited the order of the West Regional Bench reported in 1990 (45) ELT 84, para 7, which for convenience of reference is extracted below:
“The learned senior counsel’s argument is that these refractories are used not merely as lining material in the furnace but also to participate in the chemical process of steel making and provides improvement in the quality of steel making. Hence he emphasises on the need for extension of MODVAT benefit since it cannot be equated with machinery or capital goods because of these distinctive functions. While this claim is considered later in detail, at this juncture, even admitting that these refractories participate in the chemical process and contribute to improvement in quality of steel making, it cannot be denied that these refractory bricks and other materials are used in the inner surface of these machines and equipments by lining the entire surface and cementing them so as to provide heat resistance and corrosive resistance lining for these machines and equipments. In that sense they could be broadly called a constructional material for lining the machine to effectively perform, by withstanding the heat and chemical reaction. They are more in the nature of constructional 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. When this point is clear, that they go as a constructional material for lining the machine or equipment, even if they bring about the change in the substance in the final product, they would get excluded because of the explanation of Rule 57A. Hence we are of the view that the prime test to apply is whether the refractory goods are required as material for the effective functioning and maintenance of the machinery or they are needed in or in relation to manufacture of final product, namely steel. Pausing for a moment, items like coke, lime are fed with each batch and they are required for the manufacture of steel and can be said to have been used in or in relation to manufacture of the final product. In the case of refractory, it is not so. They are required only for “cementing” the inner surface of the machine so as to provide a protective lining against high temperature and chemical reaction. We are, therefore, of the view that refractory can be said to be used only with machines and equipments and cannot be construed as consumable items used in the process of manufacture of steel.
Refractory is needed, wherever a machine or equipment is exposed to high temperature operation. Unless refractory lining is given, these equipments cannot be made operational. It may be that in the case of refractories for steel, they are to be made of specified refractory materials like Dolomite, magnesite, so as to withstand chemical reaction from the molten metal and facilitate removal of impurities. That does not however make the refractory a consumable input in the manufacture of steel, nor can it be said that such refractories in steel industry are used for such chemical process and not for lining the machinery and equipments.”
6. We observe that it is accepted position that goods in respect of which the credit is claimed are used in the manufacture of sand moulds, which do not suffer any duty. The sand moulds , it has been pleaded, after their use only once, are broken after the iron castings get formed and for that reason these should be treated as intermediate goods. The point to be considered is whether the sand moulds can be considered as intermediate goods and whether by themselves these are one of the excluded category in respect of which the input credit relief under Rule 57A is not available. It is observed the term “intermediate goods” has not been defined in the Rules and has to be understood in the context in which the term ‘intermediate goods’ is used in the trade. The general understanding of the term ‘intermediate goods’ is that these emerge in the manufacturing stream of a product as something which on further being processed, yield the final product in a manufacturing unit. The term ‘intermediate goods’ cannot mean the goods which are independently prepared and are not manufactured in the course of manufacture of finished product in the manufacturing stream. The term ‘intermediate’ has been defined in the Chambers’ Dictionary as under:
“placed, occurring or classified between others, extremes, limits, or stages: of igneous rocks, between acid and basic in composition : intervening. – n. that which is intermediate; any compound manufactured from a primary that serves as a starting material for the synthesis of some other product;” and in Concise Oxford Dictionary as under:
“coming between two things in time, place or order; intermediate thing; compound formed by one reaction and then taking part in another esp. during synthesis of commercial products;”
It would appear from the above that sand moulds manufactured by the appellants used in the manufacture of castings do not qualify as intermediate goods. In the context of where some inputs which have been specified for the purpose of MODVAT credit under Rule 57A are used for the manufacture of other materials which find use in the factory of production for the specified goods in the case of Andhra Pradesh Paper Mills v. Collector of C. Excise, Guntur, in Appeal Nos. E/267 & 268/89/MAS, we have held as under:
“It is thus seen that the Hon’ble Supreme Court has held that so long as it can be shown that the materials used as inputs have a nexus with the process which is integrally connected with the ultimate production of goods till the same are fit for being put in the marketing stream and such process is so integrally connected with ultimate production of goods that it would be commercially inexpedient to produce the finished goods without that process, all such inputs would get the benefit of credit of duty. It is observed that the stress is on the processes which are integrally connected with the production of the goods. Therefore, for the items to pass the test of eligibility to the benefit of the MODVAT credit will be such that they participate in the process of manufacture without which the end product cannot be produced. In the present case, in the case of chemicals used, _ the learned SDR fairly concedes that so far as softening of water is concerned, the same is a process which is for the manufacture of paper and softening of water is a requirement for the manufacture of paper. He has thus conceded that soda ash used in this process would also be eligible for the benefit of MODVAT credit. In regard to the other chemicals the position is, however, different. Hydrochloric acid is used for cleaning of the wire mesh as and when the same is found to have been clogged.” … ” The expression “in relation to” has to be read in the context of the manufacturing process of the finished goods covered under the MODVAT scheme. There may be processes which are preparatory in nature and anterior to the start of the manufacturing stream of the finished product but which have to be essentially carried out before the actual manufacturing process of the goods can start or these may be related to the preparing of the material which have ultimately to go into the manufacturing stream or in preparing of certain materials which directly or indirectly participate in the manufacturing process in a manner that these help in the process of manufacture to be carried a step further. The inputs used in these processes for manufacture of the products which are in turn used in the manufacturing stream of the finished product can be taken to have been used in the manufacture or in relation to the manufacture of the finished product. Generation of steam which ultimately participates in the manufacturing processes is one such item. The other may be pre-treatment of the raw material which go into the manufacturing stream or the materials which may be used for making the end product ready for marketing. The use of the materials has to be such that they carry by their participation, in the manufacturing stream the process of manufacture a step further.”
In that case we have also considered the question of use of inputs in the machines, machinery, etc., which are employed in the manufacturing process of a specified finished product and have held that the specified inputs going into the machinery, equipment, tools, etc. would not be eligible for the benefit of the MODVAT credit. We have held as under in that case:-
“So far as dandy covers, wire netting and woollen felts are concerned these are essentially parts of the paper making machinery and their use has to be held to be to keep the paper making machinery functional for the production of paper. While these participate in the manufacture of the end-product by being a part of the paper making machinery these by themselves do not participate in the process which are Carried out in processing the materials which ultimately lead to the manufacture of paper. We observe while allowing MODVAT credit regard will have to be had to the purpose of the scheme i.e. to reduce the cascading effect of the duty on the finished product by way of relief of the duty paid in respect of the goods which are used in or in relation to the manufacture of the finished product. The machineries, equipments and apparatus by themselves have been precluded from the benefit of the MODVAT credit. Cascading effect of the duty paid on the machinery used in or in relation to the manufacture of the finished goods is not to be mitigated and as a corollary thereto the parts which are used in these machineries to make them functional also are not entitled to the benefit of the MODVAT scheme. These parts which are used as replacement from time to time have to be held to have been used in relation to the machines themselves and not in relation to the manufacture of the goods.”
Following our rationale set out above, we hold that the inputs used in the manufacture of sand moulds, which are by themselves in the nature of tools or apparatus, have to be held to be used in the manufacture of the sand moulds and not in or in relation to the manufacture of the castings. The appellants are also not eligible for the benefit of Rule 57D, as the sand moulds do not qualify to be ‘intermediate goods’ for the reasons given above. The appellants’ appeal, therefore, is rejected.