1992 (8) TMI 303 - AT - Central Excise

Summary

Issues:
- Disallowance of MODVAT credit for Nitrogen gas used in or in relation to the final product MMA Monomer.
- Interpretation of Rule 57A of the Central Excise Rules regarding the eligibility of Nitrogen gas as an input for MODVAT credit.

Analysis:

1. The appeals challenged the disallowance of MODVAT credit by the Collector of Central Excise (Appeals) Bombay for Nitrogen gas used in the final product MMA Monomer. The Asstt. Collector disallowed the credit, stating that Nitrogen gas was used to create an inert atmosphere but did not participate in the chemical reaction. The appellants argued that the gas was essential for creating the inert atmosphere necessary for manufacturing MMA Monomer.

2. The appellants contended that Rule 57A of the Central Excise Rules permits MODVAT credit for items used "in relation" to the manufacture of the final product. They cited various decisions supporting the eligibility of inputs used indirectly in the manufacturing process. The authorities did not dispute the use of Nitrogen gas by the appellants in the manufacturing process.

3. The Tribunal noted that the appellants had declared Nitrogen gas as an input for MMA Monomer and that the gas was used to prevent evaporation of a key ingredient, HCL, essential for manufacturing MMA Monomer. The Tribunal emphasized that Nitrogen gas, though not directly involved in the product mix or chemical reaction, was crucial for maintaining the integrity of the manufacturing process.

4. The Tribunal found that the creation of an inert atmosphere by using Nitrogen gas was directly related to the manufacturing process of MMA Monomer. The authorities' failure to recognize the significance of Nitrogen gas in preventing polymerization of HCL and maintaining the manufacturing process indicated an erroneous interpretation of Rule 57A.

5. Consequently, the Tribunal held that Nitrogen gas was used in relation to the manufacture of MMA Monomer and was eligible for MODVAT credit under Rule 57A. The orders disallowing the credit and confirming the demand were set aside, and the appeals were allowed in favor of the appellants.