JUDGMENT
G.S. Singhvi, J.
1. On an application filed by the peti-tioner-assessee under Section 35G(1) of the Central Excise Act, 1944. (For short, the 1944 Act), Customs Excise and Gold (Control) Appellate Tribunal, New Delhi (for short, ‘the Tribunal’) has referred the following questions of law for the opinion of this Court:
(i) Whether fire bricks which form part of the electric are furnace stand excluded from Modvat coverage in terms of Explanation to Rule 57A of Central Excise Rules, 1944 when the they fall for classification under Chapter 69 (covering ceramics) and not chapter 84 or 85 which cover machines and machinery?
(ii) Whether the item excluded specifically from the scope of the expression “inputs” in the Explanation to Rule 57A should be held to cover not only items like machine, machinery, equipment, and apparatus but also parts thereof?
(iii) Whether the majority view in the present case was correct in not having followed the decision of the Larger Bench of the Tribunal in the case of A.B. Tools extending Modvat credit on an analogous input viz. ramming mass used for lining of furnace which is similar to the use of the input in the question viz. refractory bricks?
(iv) Whether the majority view in the present case was correct in holding that fire bricks which are construction materials for furnaces are used only as raw materials in the manufacture and subsequent maintenance of the furnaces as such not treatable as used “in or in relation to the manufacture” of the appellants final product, steel?
(v) Whether the Tribunal has erred in interpreting the observation of the Hon’ble Supreme Court in the case of C.C.E. v. Ballarpur Industries (supra) about the utilisation of the material in the manufacturing process as distinct from the manufacturing apparatus to mean that the use of fire bricks by the applicants constitutes their use as manufacturing apparatus and not use in the manufacturing process?
2. The assessee is engaged in the manufacture of iron and steel products classified under Chapter 72 of the Central Excise Tariff. It availed Modvat credit for the period from June, 1987 to June, 1988 on the duty paid on refractories used for lining of electric arc furnace which, in turn, is used for manufacture of iron and steel products. It filed Modvat declaration under Rule 57G of the Central Excise Rules, 1944 (for short, ‘the Rules’) on 28-3-1986 covering various input items of the refractories including the bricks. The Jurisdictional Assistant Commissioner, Central Excise Division, Faridabad (for short, ‘the Assistant Commissioner’) rejected the same. The appeal filed by the assessee against the order of the Assistant Commissioner was allowed by Commissioner (Appeals), Central Excise, New Delhi [for short, ‘The Commissioner (Appeals)’] and the case was remanded for de novo adjudication. In the meanwhile, the assessee continued to avail Modvat credits on all the items including the bricks used in the electric arc furnace. The Assistant Commissioner issued show cause notice dated 31-8-1988 proposing to disallow the Modvat credit amounting to Rs. 2,26,638.50 availed by the assessee on various items of refractories from June, 1987 to June, 1988. After hearing the representative of the assessee and considering the reply filed by it, the Assistant Commissioner, vide his order dated 27-7-1990, confirmed the proposal contained in the show cause notice. The appeal filed by the assessee against the order of the Assistant Commissioner was partly allowed by the Commissioner (Appeals) vide his order dated 5-4-1991. He held that the items of inputs were not eligible for Modvat credits under Rule 57A of the Rules, but restricted the disallowance for a period of six months and reduced the total amount from Rs. 2,26,638.50 to Rs. 1,34,548.14 Further appeal filed by the assessee was dismissed by the Tribunal vide its order dated 10-7-1996 .
3. We have heard Shri Rajesh Bindal, learned Counsel for the assessee and Shri M.S. Guglani, learned Additional Central Government Standing Counsel for the Department.
4. The main question referred by the Tribunal, namely, whether fire bricks which form part of the electric arc furnace stand excluded from Modvat coverage in terms of Explanation to Rule 57A of the Rules when they fall for classification under Chapter 69 (covering ceramics) and not Chapters 84 or 85, which cover machines machinery is no longer res Integra. In Collector of Central Excise, New Delhi v. Ballarpur Industries Limited , the Supreme Court considered the question whether Sodium Sulphate could be said to have been used as “Raw Material” in manufacture of paper and paperboard and hold as under:-
It is improper to say that for a input or ingredient to qualify itself is “Raw material” it must necessarily and in all cases go into, and be found in the end-product. The ingredients used in the chemical technology of manufacture of any end-product might compromise amongst others, of those which may retain their dominant individual identity and character throughout the process and also in the end-product; those which as a result of interaction with other chemicals or ingredients, might themselves undergo chemical or qualitative changes and in such altered from find themselves in the end-product; those which, like catalytic agents, while influencing and accelerating the chemical reactions, however, may themselves remain uninfluenced and unaltered and remain independent of and outside the end-products and those which might be burnt-up or consumed in the chemical reactions. A ingredient or input which gets burnt-up or consumed in the chemical process of manufacture can qualify as and is eligible to be called “Raw material” for the end-product but for that the ingredient should be so essential for the chemical processes culminating in the emergence of the desired end-product, that having regard to its importance in and indispensability for the process, it could be said that its very consumption on burning-up is its quality and value as raw material. In such a case, the relevant test is not its absence in the end-product, but the dependence of the end-product for its essential presence at the delivery end of the process. This quality should coalesce with the requirement that its utilisation is in the manufacturing process as distinct from the manufacturing apparatus.
Sodium Sulphate used in the manufacture of paper qualifies as “Raw Material” within the meaning of the Notification No. 105/82-C.E., dated 28-2-1982. The assessee-manufacturer is therefore entitled to proforma credits of the duty paid on “Sodium Sulphate” used in the manufacture of paper and paperboards by him.
5. In Collector of Central Excise, Bhubaneshwar v. Orient Paper Mills, Sambalpur, Orissa and Ors. , their lordships of the Supreme Court considered the question whether wrapping of finished products by wrapping paper was a process incidental and ancillary to the manufacture of product and the respondent was entitled to exemption from duty under Notification No. 18A/83-C.E. dated 9-7-1983 and answered the same in affirmative by making the following observations :-
To be able to be marketed or to be marketable, it appears to us, in the light of facts in the appeals, that it was an essential requirement to be goods, to be wrapped in paper. Anything required to make the goods marketable must form part of the manufacture and any raw material or any materials used for the same would be component part for the end-product. In our opinion, the Tribunal was right in the view it took. There is no ground to interfere in these appeals.
6. In M/s. Steel Authority of India Ltd. v. Collector of Central Excise , the Supreme Court considered whether the appellant was entitled to concessional rate of duty on raw naphtha used for manufacturing fertiliser and answered the same in the following words :
There can be no doubt that the raw naphtha that was fed by SAIL into its plant was for the purpose and with the intention of manufacturing fertiliser and that it was only because of supervening circumstances, namely, the low, uncertain and fluctuating availability of power, that the reformed gas produced during the interim stage of manufacture had to be vented out. The benefit of the exemption notification is, therefore, available to SAIL in regard to the raw naphtha that it utilised in its plant for the manufacture of fertiliser but which, for reasons over which it had no control, did not, in fact, result in the manufacture of fertiliser but had, at the interim stage of reformed gas, to be vented out.
7. In Jaypee Rewa Cement v. Commissioner of Central Excise, M.P. , the Supreme Court considered the question whether the explosive used to extract limestones from mines could be treated as inputs for the manufacture of cement so as to entitle the assessee to claim Modvat credit under Rule 57A of the Rules and held as under :-
Admittedly, explosives fall under Chapter 36 of the Schedule to the Central Excise Tariff Act, 1985. The particular items used by the appellant come under Headings 36.01, 36.02 and 36.03. Therefore, they fall under column (2) of the table annexed to the notification dated 1-3-1994. While cement comes under Chapter 25 and is a final product falling under column (3) of the Table. Therefore, both explosives as well as cement fall under column (2) and column (3) respectively of that Table.
A reading of Rule 57A clearly shows that the notification is to specify the goods used in or in relation to the manufacture of the final product, whether directly or indirectly. In the present case, inputs which were used in relation to the manufacture even directly would be regarded as inputs for the purpose of Rule 57A. Rule 57A(1) does not, in any way specify that the inputs have to be utilised within the factory premises. The Explanation contained in Rule 57A is merely meant to enlarge the meaning of the word “input” and does not in any way restrict the use of the input to within the factory premises.
The appellant could not have claimed for Modvat credit in respect of limestone because of the provisions of Rule 57C, inasmuch as there was an exemption from levy of excise duty in respect thereof for a certain period and for the rest of the period the tariff itself provided that there would be nil rate of duty on the limestone which was extracted.
CEGAT has ignored Rule 57J, which will be applicable notwithstanding anything contained in the other Rules. Pursuant to Rule 57J, notification was issued on 20-6-1986 which was amended from time to time. Explosives fall under column (2) of the notification being a tariff item in Chapter 36; the intermediate product, namely, limestone being a tariff item in Chapter 36; the intermediate product, namely, limestone falls under column (3) being covered by Chapter 25; and the final product, namely, cement also falls under Chapter 25 and therefore under column (4). The reading of Rule 57J along with the said notification shows that even in respect of inputs used in the manufacture of intermediate product which product is then used for the manufacture of a final product, the manufacturer would be allowed credit on the duty paid in respect of the input. On the explosives a duty had been paid and the appellant would be entitled to claim credit because the explosives were used for the manufacture of the intermediate product, namely, limestone which, in turn, was used for the manufacture of cement.
8. In Central Excise Commissioner, Bangalore v. Escorts Mahle Limited , the Supreme Court considered the question whether or not the assessee is entitled to avail Modvat credit in respect of Ramming Mass. Fibre glass and filter mesh used or in relation to the manufacture of pistons on the ground that the same are covered under proviso to Rule 57A of the Rules. After referring to the book titled as “Electric Furnace Steel Making” published by the American Institute of Mining, the Supreme Court held:
Keeping the aforesaid manufacturing process in view and also bearing in mind that it is essential to control the acidic vapours generated during the steel manufacturing process, this Bench has held in C.A. No. 6615/2003 (Collector of Central Excise v. Steel Authority of India Limited) that use of such chemicals is essential for the manufacturing process. Specifically, it was observed that:
As discussed by the concerned authority burnt dolomite is used so as to neutralize the acid which is formed at the time of manufacturing steel. This burnt dolomite is, therefore, used in relation to manufacturing of the final product. It has been rightly pointed out that respondent is using burnt dolomite in relation to manufacture of final product so that it may combine with acid which is formed at the time of manufacture of the steel and neutralize the said acid so that it may prevent damage to the furnace. But the used burnt dolomite is for neutralizing the acid form in the course of manufacture of steel. Hence the judgment cannot be said to be, in any way, illegal or erroneous. The appeal is, therefore, dismissed. There shall be no order as to costs.
Manufacturing process being the same in these cases, we hold that the as-sessees are entitled to Modvat credit on Ramming Mass, Fibre glass and filter mesh.
9. In Collector of Central Excise, Chandigarh v. Zenith Papers, , a Division Bench of this Court considered the question whether Modvat credit is admissible under Rule 57A of the Rules in respect of Wire Mesh and Felt (Synthetic Cloth for Paper Machines) and answered the same in affirmative. Some of the observations made in that decision are extracted below :
A perusal of Rule 57A would show that the manufacturer of excisable goods is entitled to claim Modvat credit in respect of the “goods used in or in relation to the manufacture of the said final products whether directly or indirectly and whether contained in the final products or not”. A further perusal of the Explanation shows that inputs includes all things which are used within the factory for production, including paints, packaging materials, fuel, etc.
It is not disputed that Wire Mesh and the Synthetic Cloth are used as replaceable goods in the course of manufacture of paper. They are used directly as well as indirectly for the manufacture of the final product. These shall fall within the concept of ‘input’ as contained in Rule 57A.
10. In Commissioner of Central Excise, Chandigarh v. Bhushan Industries Limited, Chandigarh, Central Excise Case No. 7 of 2001, decided on 28-8-2001, a Division Bench of which one of us (G.S. Singhvi, J.) was a member considered the following questions:
(i) Whether Machine, Plant, Apparatus, Tools or Appliances etc. used for producing or processing of any goods or for bringing about any chance in an substance in or in relation to the manufacture of final products, are not eligible for Modvat credit and the exclusion clause of Explanation to Rule 57A Ramming mass, Mortar, Castable Powder, Refractory, Foundry Fluxes and Chemicals are used as part of furnace. The Grinding Wheel is used as tool. Therefore, will not all these items be covered in the excluded category of items under Explanation to Rule 57A?
(2) Whether the term machine, machinery, plant etc. have been used in the exclusion Clause (1) of Rule 57A in a general sense and if their constituent are taken as inclusive inputs when the plant or machinery themselves are not, will not the exclusion become superfluous and meaningless?
11. After making refererce to the manufacturing process and Rule 57A of the Rules, the Court held as under :-
A perusal of the rule reproduced above shows that the modvat can be availed on the goods used in or in relation to the manufacture of the final product, whether directly or indirectly and whether contained in the final product or not. The expressions “used in or in relation to the manufacture of the final product”, “whether directly or indirectly” and “whether contained in the final product or not” are wide enough to cover the goods used by respondent No. 1 in relation to the manufacture of the final product, namely, steel ingots and billets notwithstanding the fact that the same do not form part of the final product. The argument of Shri Rajesh Gumber that the Modvat credit could not have been a\ ailed in respect of the items falling in the exclusion part of the Explanation appearing below Rule 57A(1) is clearly untenable because the Mortar, Orcast, Castable Refractories etc. are not covered by Rule 57Q of the Rules. Therefore, the view taken by the Commissioner (Appeals) and the Tribunal cannot be termed as perverse giving rise to the questions of law, as framed by the petitioner.
12. By applying the ratio of the above-noted judgments to the facts of this case, we hold that the fire bricks which form part of the electric arc furnace are not excluded from Modvat coverage in terms of the Explanation appearing below Rule 57A of the Rules because the same are used in relation to the manufacture of the final product. We further hold that the Assistant Commissioner, the Commissioner (Appeals) and the Tribunal gravely erred in disallowing Modvat credit to the assessee in respect of the bricks used in the electric arc furnace from June, 1987 to June, 1988.
13. In the result, the questions referred by the Tribunal are answered in favour of the assessee and against the Department.
