2006 (2) TMI 542 - AT - Central Excise

Cenvat/Modvat - Inputs - process of manufacture or not - denied Modvat credit in respect of gases used for various purposes of cutting of Iron Steel products - HELD THAT - In Punjab Haryana High Court in the case of CCE, v. National Fertilizers Ltd. 2001 (10) TMI 111 - HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH , maintenance and overhauling of machinery is an integral part in the process of production. Therefore, the decision of the Larger Bench, rendered in the case of in CCE v. Modi Rubber Ltd. 2000 (5) TMI 64 - CEGAT, NEW DELHI , holds that lubricating oils and greases used for the purpose of lubricating the machines and machinery is to be taken as a process for the manufacture of final product, as it is essential for their working and integrally connected with the manufacture. In the result, applying the ratio of the Punjab Haryana High Court judgment noted supra, which in turn refers to two Supreme Court judgments, and by following the ratio of the Larger Bench judgments rendered in Modi Rubber Ltd. and Union Carbide Ltd. 1996 (6) TMI 308 - CEGAT, NEW DELHI-LB , the appellant s plea is required to be accepted. The inputs viz. Welding Electrodes, Oxygen Gas and Acetylene Gas used for welding the punctured pipes carrying the hot sugar juice should be treated as part of process of manufacture and hence they are eligible inputs for the manufacture of the final product. The appeal is allowed with consequential relief, if any. Thus, the impugned order is set aside and the appeal is allowed with consequential relief, if any.

Summary

Issues:
Denial of Modvat credit for gases used in welding activities for maintenance and repair purposes within the factory for captive consumption.

Analysis:
The appellant contended that the welding activity using gases like Oxygen, Acetylene, and Argon is essential for manufacturing final products and not merely maintenance work. Referring to various judgments, including those of the Supreme Court and High Courts, the appellant argued that denial of Modvat credit was unjustified. The tribunal considered the issue extensively, citing the case of India Sugars & Refineries Ltd., where it was held that maintenance and overhauling of machinery is integral to the manufacturing process. The tribunal highlighted the importance of welding activities in the production of final goods, aligning with the judgments of the Punjab & Haryana High Court and the Supreme Court. It was emphasized that welding electrodes and gases used in welding processes should be considered eligible inputs for the manufacture of final products.

The learned SDR, however, supported the Commissioner's findings, asserting that the benefit of Modvat credit cannot be extended to welding activities as they are categorized as maintenance activities. Despite this argument, the tribunal upheld the appellant's position, drawing on precedents that emphasized the essential nature of welding activities in the manufacturing process. The tribunal noted that the denial of Modvat credit for welding electrodes and gases contradicted the judgments of higher courts, which recognized the significance of maintenance activities in the production process.

In conclusion, the tribunal set aside the impugned order and allowed the appeal, granting the appellant the benefit of Modvat credit for welding activities involving gases like Oxygen, Acetylene, and Argon. The decision was based on the understanding that such activities are integral to the manufacturing process and essential for the production of final goods. The tribunal's ruling aligned with the principles established in previous judgments of the Supreme Court and High Courts, emphasizing the importance of maintenance and repair activities in industrial production processes.