2016 (12) TMI 80 - AT - Central Excise

MODVAT credit - Ceramic Balls - Ethyl Alcohol - manufacture of Mono Ethylene Glycol (MEG) Di Ethylene Glycol (DEG) & Tri Ethylene Glycol (TEG) falling under sub-heading 2905.90 of the Central Excise Tariff Act 1985 - whether the denial of MODVAT credit on the ground that it is not directly used in the manufacture of final product justified? - Held that - Ceramic Balls are used for de-sulphurication of feed stock Ethylene viz to purify the basic raw material. In our view this process is vital process for further manufacturing of final products. Ethylene without purification cannot be used in the manufacture of final product. Therefore the use of Ceramic Balls for processing of raw material for the manufacture of final products. The processing of manufacture start from of the raw material stage up to the manufacture of final product. It is used for conversion of non-purified Ethylene to purified form. Therefore the Ceramic Balls are used in the manufacturing process - The very same issue has been decided by this Tribunal in favor of the appellant as per the Tribunal decision in the case of Reliance Industries Ltd. 2000 (1) TMI 85 - CEGAT MUMBAI where the credit was allowed. As regard Ethyl Alcohol we find that the same is pumped to MEG plant by vertical pumps at minus 130 degrees and its leakage to atmosphere is extremely hazardous. The Ethyl Alcohol is circulated in the pump seals which act as barrier for preventing leaks of Ethylene. In our considered view this process is part of the manufacturing of final products. Both the inputs i.e. Ceramic Balls and Ethyl Alcohol are used in the manufacturing of final product of the appellant. Therefore the appellant is entitled for the MODVAT credit on the said items - appeal allowed - decided in favor of appellant-assessee.

Summary

Issues involved: Admissibility of MODVAT credit on inputs Ceramic Balls and Ethyl Alcohol used in the manufacture of specified final products falling under sub-heading 2905.90 of the Central Excise Tariff Act, 1985.

Analysis:

1. Admissibility of MODVAT credit on Ceramic Balls:
The appellant contended that Ceramic Balls are crucial for the de-sulphurication of feed stock Ethylene, essential for purifying the basic raw material vital in manufacturing specified final products. The use of Ceramic Balls in processing raw material is indispensable for the production process, preventing disruptions or off-specification final products. Citing a previous Tribunal decision in Reliance Industries Ltd. Vs. CCE, the appellant argued for entitlement to MODVAT credit on Ceramic Balls. The Tribunal agreed, emphasizing that the purification process using Ceramic Balls is integral to the manufacturing process, converting non-purified Ethylene to a purified form necessary for the final product. Hence, the use of Ceramic Balls qualifies for MODVAT credit.

2. Admissibility of MODVAT credit on Ethyl Alcohol:
Regarding Ethyl Alcohol, the appellant highlighted its critical role in the manufacturing process, being pumped to the MEG plant at extremely low temperatures to prevent hazardous leaks. Ethyl Alcohol circulated in pump seals acts as a barrier against Ethylene leaks, essential for manufacturing the final product MEG. Despite the Commissioner (Appeals) disputing Ethyl Alcohol's relevance to final product manufacture, the Tribunal found Ethyl Alcohol's use integral to the manufacturing process. The Tribunal reasoned that Ethyl Alcohol's role in preventing leaks and ensuring product quality makes it a necessary component for MODVAT credit eligibility. Consequently, the Tribunal allowed the appeal, granting MODVAT credit on both Ceramic Balls and Ethyl Alcohol.

In conclusion, the Tribunal ruled in favor of the appellant, establishing the admissibility of MODVAT credit on inputs Ceramic Balls and Ethyl Alcohol crucial for the manufacturing process of specified final products. The judgment emphasized the vital roles of these inputs in ensuring product quality and process integrity, aligning with previous decisions and industry practices.