2003 (11) TMI 516 - AT - Central Excise

Summary

Issues:
Eligibility of Modvat credit for duty paid on organic surface active agents used in cleaning machinery for manufacturing frozen desserts.

Analysis:
The judgment revolves around the eligibility of Modvat credit for duty paid on organic surface active agents used in cleaning machinery for manufacturing frozen desserts. The appellant sought credit for these chemicals, arguing that they were essential to keep the machinery free of microbes, ensuring the final product conformed to food safety standards. The Commissioner (Appeals) denied the credit, stating the chemicals were not directly related to the final product's manufacture. The appellant cited previous Tribunal decisions to support their claim, emphasizing the necessity of these chemicals for maintaining hygiene standards.

The departmental representative argued that the use of these chemicals was too remote from the final product's manufacture to qualify as "used in relation to the manufacture." Reference was made to a Tribunal decision in Orient Paper Mills case to support this stance. However, the judgment highlighted that during the relevant period, Rule 57A allowed Modvat credit for goods "used in or in relation to the manufacture of the final product." While the chemicals were not directly used in manufacturing the final product, they were crucial for maintaining the cleanliness of machinery involved in the production process.

The judgment analyzed previous Tribunal decisions where materials used for cleaning containers or machinery were considered inputs for manufacturing. It differentiated between cases where cleaning materials were essential for ensuring the machinery's functionality and cases where the cleaning materials were not directly related to the manufacturing process. The judgment concluded that in the present case, the organic surface active agents were indeed used in relation to the manufacture of frozen desserts, as they were necessary to prevent contamination and maintain hygiene standards.

In light of the arguments presented and the legal framework governing Modvat credit eligibility, the judgment allowed the appeal and set aside the impugned order, ruling in favor of the appellant's entitlement to the Modvat credit for the duty paid on the organic surface active agents used in cleaning the machinery for manufacturing frozen desserts.