1999 (12) TMI 76 - HC - Central Excise

Summary

Issues:
1. Eligibility for Modvat credit in respect of Ramming Mass, Fibre glass, and filter mesh used in or in relation to the manufacture of pistons.
2. Rejection of Modvat credit on rejected pistons recycled in the manufacture of pistons.

Issue 1: Eligibility for Modvat Credit
The Customs Excise and Gold (Control) Appellate Tribunal referred questions regarding the eligibility of Modvat credit for Ramming Mass, Fibre glass, and filter mesh used in the manufacture of pistons. The Tribunal found that items eligible for Modvat credit must participate in the manufacturing process without which the end product cannot be produced. Processed materials used in the preparatory stage or to make the finished product marketable are eligible. The Tribunal held that Modvat credit for Ramming Mass cannot be allowed. Regarding Filter mesh, it was observed that it is used to remove oxide inclusions from molten alloy melts, becoming part of the finished product. The Tribunal considered the interpretation of Rule 57A of the Central Excise Rules 1944, emphasizing that items used in relation to the manufacture of the final product are eligible for Modvat credit. The Tribunal concluded that Ramming Mass, Fibre glass, and filter mesh are eligible for Modvat credit.

Issue 2: Rejection of Modvat Credit on Rejected Pistons
The Tribunal also considered the rejection of Modvat credit on rejected pistons recycled in the manufacture of pistons. The assessee argued that the word "in relation to the manufacture" in Rule 57A extends the meaning of input, making any item used in relation to the manufacture eligible for Modvat credit. The assessee relied on previous judgments to support their argument. The Department contended that Modvat benefit applies to components and raw materials, not items used in the manufacture of final products. The Tribunal analyzed Rule 57A and concluded that items used in relation to the manufacture of the final product are eligible for Modvat credit. Based on the evidence presented, the Tribunal found that Ramming Mass, Fibre glass, and filter mesh qualify for Modvat credit.

In conclusion, the High Court held that the Tribunal was not correct in denying Modvat credit for Ramming Mass, Fibre glass, and filter mesh used in relation to the manufacture of pistons. The reference was answered in favor of the assessee and against the revenue.