2012 (1) TMI 155 - AT - Central Excise

Issues Involved:
1. Eligibility to Modvat credit for 'Teflon Coated Glass Fabric Belt' u/s Rule 57A of Central Excise Rules, 1944.

Summary:

Eligibility to Modvat Credit:

The core issue in dispute is the eligibility to Modvat credit of duty paid on 'Teflon Coated Glass Fabric Belt' by the assessees, who are manufacturers of non-refractory surfacing preparations, organic composite solvents, thinners, and bonding emulsions. The department contended that the item cannot be considered as an input in the manufacture of non-refractory surface preparation to extend credit u/s Rule 57A of Central Excise Rules, 1944.

The use of the belt involves spreading treated clay in paste form uniformly on the Teflon-coated belt, which passes through an oven, resulting in the manufacture of 'Heritage Flakes.' The Teflon coating helps release the flakes due to its non-stick property and provides an even surface finish. The coating gets consumed and needs replacement after approximately 5 meters of manufacturing.

The assessees argued that the belt is part of the machinery used in the manufacture of heritage flakes and participates in the process of manufacture, thus entitled to credit as per the decision in Union Carbide India Ltd. v. Collector of Central Excise, Calcutta-I [1996 (86) E.L.T. 613 (Tribunal)]. The Revenue contended that the belt only serves as a medium for transportation and does not participate in the manufacturing process.

Rule 57A as it stood during the period in dispute (Feb.'92 to Sept.'94) allowed credit for duty paid on goods used in or in relation to the manufacture of final products, excluding machines, machinery, plant equipment, apparatus, tools, or appliances used for producing or processing goods.

It was held that the goods in question participate in the manufacturing process by providing a non-stick and heat-resistant surface, essential for the final product 'heritage flakes' to come into existence. This function is comparable to goods like felts and wire mesh held to be inputs in the Union Carbide decision. The impugned order did not dispute the use of the goods under consideration, comparable to the Straw Products case, where credit was admissible for chemicals and materials used in the manufacture of paper.

Based on the functional use of the items and decisions in similar cases (e.g., Sirpur Paper Mills Limited v. Collector of Central Excise, Hyderabad [2003 (159) E.L.T. 17 (A.P.)]), it was concluded that the Teflon-coated belts, being consumables requiring frequent replacement, are inputs eligible for credit.

Separate Judgment:
In a separate judgment, Chittaranjan Satapathy, Member (T), disagreed, stating that the Teflon-coated belt functions merely as a carrier and does not participate in the manufacturing process. He upheld the lower appellate authority's decision denying Modvat credit, comparing the belt's function to a Teflon-coated non-stick pan used for making dosas, which cannot be considered an input for dosa making.

The majority order held that the disputed item is an input used in or in relation to the manufacture of 'heritage flakes' and hence eligible for credit, setting aside the impugned orders and allowing the appeals.

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