1997 (6) TMI 292 - AT - Central Excise

Summary

Issues: Denial of Modvat credit on Liquid Nitrogen used in the manufacture of spray dried silica.

Analysis:

1. The appeal arose from the Commissioner (Appeals) upholding the denial of Modvat credit on Liquid Nitrogen used in the manufacture of spray dried silica. The lower Appellate authority set aside the denial of credit on certain other items and reduced the penalty. Liquid Nitrogen is crucial in determining the N2 Surface Area in the manufacturing process to ensure the desired grade of silica is produced. It is used at different stages of production to confirm the surface area of silica before packing, essential for classifying silica into different grades meeting customer specifications.

2. The lower authorities rejected the claim for credit on Liquid Nitrogen, stating it is used for testing after the final product is fully manufactured, which they deemed as not constituting an input eligible for Modvat credit. However, based on the technical literature and flow chart provided by the appellants, it was evident that the liquid nitrogen is used to determine the correct grade of silica, which varies according to customer specifications. Different grades of silica are required for various purposes, making it essential to test the silica using liquid nitrogen.

3. The Tribunal referred to a previous case where it was held that a similar testing process using Argon gas was considered an input used in relation to the final product. In this case, liquid nitrogen was deemed essential for testing the correct grade of silica and controlling the surface area, thus directly linked to the manufacture of the final product. The technical material, including manufacturer's catalog and purchase orders, supported the necessity of liquid nitrogen in the manufacturing process, leading to the conclusion that it qualifies for Modvat credit.

4. Consequently, the judgment set aside the previous order denying Modvat credit on Liquid Nitrogen and allowed the appeal, granting the appellants the benefit of Modvat credit for the essential role of liquid nitrogen in the manufacturing process of spray dried silica. The decision also included providing any consequential relief due to the appellants in accordance with the law.