2005 (2) TMI 132 - SC - Central Excise

Cenvat/Modvat Credit - Inputs goods - whether the appellant was entitled to the benefit of Notification No. 217/86-C.E., dated 2-4-86 in respect of MS Casings - Held that - CEGAT was clearly wrong in its approach. The issue has been settled by this Court in Collector of Central Excise v. Ballarpur Industries Ltd. - 1989 (9) TMI 102 - SUPREME COURT OF INDIA where the construction of a similar Notification was in question. This Court held that there were four kinds of inputs which could be said to be ingredients (i) those which retain their dominant individual identity and character throughout the process and also in the end-product, (ii) those which, as a result of interaction with other chemicals or ingredients, might themselves undergo chemical or qualitative changes and in such altered form find themselves in the end-product, (iii) those which like catalytic agents, while influencing and accelerating the chemical reactions themselves remain uninfluenced and unaltered and remain independent of and outside the end-products; and (iv) those which might be burnt up or consumed in the chemical reactions - The process of manufacture in which metal casings are involved clearly fell within the 4th category - Decided in favour of assessee.

Summary

Issues:
1. Interpretation of Notification No. 217/86-C.E. regarding exemption for Modvat Items.
2. Determining whether MS Casings used in the manufacture of Calcium Carbide qualify as inputs under the Notification.

Analysis:
1. The Supreme Court analyzed the Notification No. 217/86-C.E., which provided exemption to Modvat Items used as inputs in the production of final products specified in the Notification. The Explanation to the Notification excluded certain items from the definition of inputs, including machinery used for production and packaging materials. The question was whether the appellant, a manufacturer of Calcium Carbide, was entitled to the benefit of this Notification in relation to MS Casings used in the manufacturing process.

2. The appellant used MS Casings in the production of Calcium Carbide, where the casings were filled with carbon paste, subjected to a current, and then melted in a furnace. The issue was whether MS Casings were considered inputs under the Notification. The Assistant Collector initially denied the benefit, considering MS Casings as equipment bringing about a change in the final product. However, the Collector (Appeals) and CEGAT held that MS Casings were inputs as they were consumed in the process and essential for manufacturing Calcium Carbide.

3. The Supreme Court referred to a previous judgment to define four categories of inputs, including those consumed in chemical reactions. The Court determined that MS Casings fell under the category of inputs that are burnt up or consumed in the chemical reactions during the manufacturing process of Calcium Carbide. Therefore, the Court concluded that the Collector (Appeals) was correct in considering MS Casings as inputs, contrary to the decision of CEGAT.

4. In light of the above analysis, the Supreme Court allowed the appeal, setting aside the decision of CEGAT, and held that MS Casings used in the manufacture of Calcium Carbide qualified as inputs under the Notification. The Court emphasized the importance of considering the nature of inputs in the manufacturing process to determine their eligibility for exemption under relevant Notifications.