ORDER
G.R. Sharma, Member (T)
1. In the captioned appeal the decision of the Commissioner has been agitated. The Commissioner dealt with 23 show cause notices in his order. In his order the Commissioner disallowed the Modvat credit on Mortars, Refining Flux, Bottom Pouring Sets, Refractory Bricks, Mozolex, Refractory castables and miscellaneous chemicals.
2. The facts of the case are that the appellants are engaged in the manufacture of cast steel billets and steel ingots from waste and scrap of iron and steel, ferro alloys etc. During the scrutiny of the documents it was found that the appellants had been availing Modvat credit on Ramming Mass, Mortars, Refining Flux, Bottom Pouring Sets, Refractory Bricks, Mozolex, Refractory castables and Miscellaneous chemicals. The department alleged that Modvat credit on these items was not admissible inasmuch as these items were meant for maintaining the arc furnace and therefore fell in the excluded category. Therefore 23 show cause notices were issued to the appellants. The appellants filed a writ petition before the Hon’ble High Court of Madhya Pradesh. While disposing of the writ petition the Hon’ble High Court directed that, the matter be kept for decision of the department in conformity with the decision in the case reported in 1994 (71) E.L.T. 776 (CCE, Chandigarh v. A.B. Tools Ltd.) and 1994 (74) E.L.T. 123 (Kesari Steels v. CCE, Indore). Personal hearings were granted to the appellants however they did not avail of. The Commissioner therefore proceeded to decide the case in terms of Hon’ble High Court’s orders and held that Modvat credit shall be admissible on ramming mass and no Modvat credit shall be admissible on the other items.
3. Shri A. Upadhyay, learned Advocate appearing for the appellants submits that explanation under Rule 57A lists the items under Clause (c) on which no Modvat credit will be admissible. It was argued by the learned Counsel that expression ‘in relation to’ has a very wide connotation; that the definition of inputs is not dependent upon what ought to be used but in fact is used; that the appellants had been using above items in the manufacture of ingots and billets; that the Apex Court also held that the manufacture would include a process which can be commercially expedient in the production of goods; that the chemicals used for protecting the equipment or in relation to equipment not treatable as apparatus, appliance, tools etc.; that the Hon’ble Supreme Court in the case of CCE v. Eastern* Paper Industries Ltd. [(1989) (43) E.L.T. 201] had held that anything that enters into and forms part of manufacturing process or is required to make the article marketable must be deemed to be raw material or component part of the end product and must be deemed to have been used in completion or manufacture of the end product. In support of his contention he cited and relied upon the judgments reported in 1989 (43) E.L.T. 201,1990 (48) E.L.T. 182,1990 (49) E.L.T. 531,1991 (55) E.L.T. 444 (S.C.), 1992 (59) E.L.T. 572,1992 (60) E.L.T. 509,1992 (61) E.L.T. 489,1995 (75) E.L.T. 735 (P. & H.) and 1996 (82) E.L.T. 575. The learned Counsel submits that the Larger Bench of this Tribunal had clarified that spare parts do not come in the category of excluded items. He, therefore submits that the items on which Modvat credit has been denied are treated as part of the machinery or chemicals; that the Hon’ble Calcutta High Court in the case of Singh Alloys held that chemicals are used in the process of manufacture are consumable inputs. Similarly the Tribunal in the case reported in 1996 (82) E.L.T. 575 held that chemicals used in the process of manufacture are consumable and hence are inputs eligible for Modvat credit. Similar view was taken by the Tribunal in the case of Straw Products reported in 1992 (59) E.L.T. 572. He, therefore prays that in view of the above submissions and the case law cited and relied upon the appeal may be allowed.
4. Shri Y.R. Kilanyia, learned JDR submits that the Commissioner in his order has clarified each point in his findings has rendered specific finding for each item after examining its use and function in the process of manufacture of steel ingots billets. He, therefore submits that Modvat credit has rightly been denied on those items and prays that the appeal may be rejected.
4A. After hearing both the sides it was decided to hear dispose of the appeal with the consent of both sides.
5. Heard the submissions of both sides. We find that the items on which Modvat credit has been denied are Mortars, Refining Flux, Bottom Pouring Sets, Refractory Bricks, Mozolex, Refractory castables and Miscellaneous Chemicals. For finding the use of these products in the process of manufacture, if any, let us examine the function of each of these items which is as under :-
(i) Mortars:- These are refractory materials used as layers in the lining of arc furnace or for joining fire bricks and requires frequent replacement. These are being used for maintenance of arc furnace.
(ii) Refining Flux :- These are actually refractory materials used in the lining and maintenance of arc furnace.
(iii) Bottom Pouring Sets :- These are refractory items or fire bricks and are used under bottom pouring system to connect different moulds during pouring of molten metal and thus as appliances.
(iv) Refractory Bricks :- These are refractory materials which form part of the electric arc furnace.
(v) Nozolex:- These are refractory materials which form part a of electric furnace.
(vi) Garnex Board :- These are Tundish linear and are used in the manufacture of continuous castings Billets as appliance or equipment. In the process of manufacture of C.C. Billets the ladle holding liquid steel is transported to continuous casting machine. Liquid metal is passed through Tundish having lining of Garnex Board.
(vii) Misc. Chemicals like Meta Slab Sets, Meta Seal, Meta Pack and Bottom Sleeners :- These are actually refractory materials used in the lining of furnace and the lining requires replacement for repairing of the arc furnace.
(viii) Refractory Castables :- These are actually refractory materials and are used in the lining for maintaining the furnace. During the course of operation of the furnace the lining of refractory materials are worn out/rusted and refractory materials are required to be replaced for repairing the furnace.
6. On the basis of the above functions of materials on which deemed Modvat credit has been denied. We find that the items can be broadly said to be either refractory or refractory materials. We find that these products were dealt with by the Tribunal in the case of Raipur Alloys 1995 (78) E.L.T. 44. The Tribunal in this case examined the issue at length in paras 22 to 33. Though the items in this case was refractory bricks/fire bricks, however, the reasoning given in the above paras equally applies to refractory materials inasmuch as that these refractory materials are materials of construction; that they are heating insulating and construction materials for the furnace; that their utilisation is in the manufacture of apparatus as furnace; that they are neither raw materials nor the inputs for the manufacture of steel; that they are not part of molten metal bath; that they are not a part of burden or the charge; that their effect on slag-metal by allowing removal of undesirable phosphorous and sulphur from the melt to the slag, their corrosion as consequence of thermodynamics of chemical reactions, which are encountered in steel making, or their effect on steel quality, do not make them the raw material or input of the metal-melt. It was contended that the material other than refractory bricks are also used as refractory bricks and therefore ratio of the judgment of this Tribunal in the case of Raipur Alloys was equally apply to Mortars, Refining Flux, Bottom Pouring Sets, Refractory Bricks, Mozolex, Refractory Castables and Miscellaneous Chemicals.
7. However we find that most of the cases so far decided by the Tribunal came for consideration before the Larger Bench of this Tribunal in the case of Union Carbide reported in 1996 (15) RLT 144 wherein the Tribunal held that:
“The one common thread which runs through all these definitions is the self-contained or complete nature of the goods. Almost every one of the expressions take in self-contained, complete units or group or assemblage of parts. None of the expressions take in mere part unless it be that the part by itself is a self-contained or complete machine, apparatus, appliance, machinery, or tool. There is no controversy that machine used for manufacture of specified final products would be eligible input for the purpose of Rule 57A of the Rules, but for the exclusion Clause (i). That being so, the absence of specific reference to spare parts in the exclusion Clause (i) is of considerable significance. The Rule-making authority, which was aware that specified machines and such other goods are eligible inputs if they are used in the manufacture of specified final products, and specifically excluded machines and such other goods from the ambit of the Rule, must have been aware that spares of such machinery, machines or other goods would also be eligible inputs but did not specifically incorporate spares in the exclusion Clause (i). There is a faint argument that if spare parts are regarded as not excluded by virtue of exclusion Clause (i) and Modvat benefit is extended to such spare parts, the provision is likely to be misused and all the parts of fax machine may be purchased and brought to the factory and the parts assembled to become a full machine to be used in the manufacture of final product and that could adversely affect the Revenue. This apprehension is not justified. Spares or parts concerned in these appeals are to replace worn-out parts or parts which require replacement. In the example cited, credit will be taken of the duty paid on the parts of the machine and used to pay duty on the machine manufactured out of the parts but machine as input is excluded by Clause (i). If, however, the parts are brought in C.K.D. condition, credit of duty paid on the C.K.D. packages is not used to pay duty on the machine since there is no “manufacture” of any machine and credit cannot be used for paying duty on the final product since C.K.D. package is itself treated as machine and machine as input is excluded under exclusion Clause (i).”
“The purpose of Rule 57A is to grant benefit of Modvat credit to manufacturers using specified goods in and in relation to the manufacture of specified final products. What could be the particular object intended to be achieved by introducing the exceptions in the exclusion Clause (i)? The clause excepts not one but a group of items. If the items were totally dissimilar with no common factor or thread, the items can be given their widest meaning. But almost all the items can be brought under an intelligible classification. The Government must have thought that only “self-contained, complete or whole” machines and not parts thereof are to be excluded. There is no reason why this logically limiting restriction should not be placed on the exclusion Clause (i). The manifest intention becomes amply clear on account of the absence of words “or parts thereof at the end of the exclusion clause.”
“The language of exclusion Clause (i) is plain and clear. It carves out “machines, machinery, plant, equipment, apparatus, tools or appliances…” These expressions indicate a self-contained unit, complete unit or whole unit but not any part thereof, unless of course, such part is also a complete unit in itself. The intention to exclude parts also along with machines, machinery and such other goods cannot be gathered from the language used, nor is it spelled out by necessary implication.
“There is a controversy as to whether the Rules of interpretation and Section notes and Chapter notes meant for classification of excisable goods for levy of duty could be relied on for interpreting the terms specified Rule 57A for excluding them from the scope of the term “inputs”. The same doubt may arise in regard to use of these Rules for interpreting the terms specified in Notifications. The West Regional Bench was inclinded to answer the question in the negative contrary to the reliance placed upon such Rules by the East Regional Bench. In indicating this view, the West Regional bench chose to disregard the decision of the High Court of Calcutta which is one of the few decisions of High Courts available on this aspect. The High Court of Calcutta in Singh Alloy and Steel Ltd. v. Assistant Collector of Central Excise – 1993 (66) E.L.T. 594 relied on the Tariff Headings and Section (see paragraph 21). The Court of Madras in Ponds (India) Ltd. v. Collector of Central Excise – 1993 (63) E.L.T. 3, placed reliance on a Chapter note (paragraphs 5 and 18). The General Rule with reference to terms and expressions is contained in Section 20 of the General Clauses Act, 1897, according to which, when by any Central Act, or Regulation, a power to issue any Notification, order, scheme, rule, form or by a law is conferred, then the expression used in the Notification, order, scheme, rule, form or by a law, if it is made after the commencement of the Act, shall, unless there is anything repugnant in the subject or context, have the same respective meaning as in the Act or Regulation conferring the power. We fail to see how it can be asserted that Rules of interpretation, Chapter notes, Tariff Headings and Sections contained in the Tariff Act are irrelevant in the context of understanding terms and expressions used in Rules or Notifications. Relevance of such aids of interpretation depends upon the context, the clarity or otherwise of the language used in the provision under consideration, the extent to which aids of construction are needed, and whether the aid so available is repugnant in the context and other relevant factors. It cannot be dogmatically asserted that in all cases, such aids of construction are relevant or safe guide.-Relevance or otherwise of these Rules and Sections and Chapter notes or any aid construction depends on the context arising in a given case.”
8. Following the ratio of the judgment of the Larger Bench of this Tribunal, we set aside the impugned order and allow the appeal. Consequential relief, if any, shall be admissible to the appellants in accordance with law.