1997 (2) TMI 487 - AT - Central Excise

Summary

Issues:
1. Disallowance of Modvat credit on certain items claimed as inputs.
2. Classification of items as tools or parts of plant and machinery.
3. Admissibility of Modvat credit on disputed items - Abrasive Grinding Belt and work roll/back up roll.

Analysis:
1. The Appellant, engaged in manufacturing cold rolled strips, availed Modvat credit on various inputs. The Additional Collector of Central Excise issued a demand-cum-show cause notice, challenging the nature of certain claimed inputs, stating they were not usable in or in relation to the manufacturing process of final products. The notice proposed disallowance of Modvat credit and duty demand. The Appellant contended that the disputed inputs were indeed used in the manufacturing process and were not tools or parts of machinery. After a personal hearing, Modvat credit was allowed on one item but disallowed on two items - Abrasive Grinding Belts and work roll/back up roll. The Collector (Appeals) upheld this decision, leading to the present appeal.

2. Regarding the Abrasive Grinding Belt, it was established that the belt is used to remove iron oxide layers from cold rolled strips during the hardening and tempering process, making the strips marketable. The belt covers rollers that remove the oxide layers, and similar functions are performed by other materials like felts and wire mesh. Referring to a precedent, it was held that such articles are considered inputs used in or in relation to the manufacturing process, even if not directly consumed. The exclusion clause under Rule 57A of the Central Excise Rules does not apply to these items. The same reasoning was applied to the work rolls or back up rolls, which are crucial in pressing hot rolled strips for strength and quality. These items were also deemed to be used in the manufacturing process.

3. The lower authorities classified the disputed items as tools or parts of machinery, potentially excluding them from the Modvat scheme. However, the definition of "tools" was not clearly established. Various dictionaries were referenced to define a tool as a mechanical implement or working instrument, typically used by hand. Since the disputed articles were integral to certain machines and did not fit the definitions of tools, it was concluded that they did not fall under the exclusion clause. Consequently, the impugned order disallowing Modvat credit on the disputed items was set aside, and the appeal was allowed.