2004 (12) TMI 104 - HC - Central Excise

Summary

Issues Involved:
1. Exclusion of fire bricks from Modvat coverage under Rule 57A of Central Excise Rules, 1944.
2. Scope of the term "inputs" in the Explanation to Rule 57A.
3. Validity of the Tribunal's majority view against the Larger Bench decision in A.B. Tools.
4. Classification of fire bricks as raw materials versus their use in the manufacturing process.
5. Interpretation of the Supreme Court's observation in C.C.E. v. Ballarpur Industries regarding manufacturing apparatus versus manufacturing process.

Issue-wise Detailed Analysis:

1. Exclusion of Fire Bricks from Modvat Coverage:
The primary issue was whether fire bricks used in electric arc furnaces are excluded from Modvat coverage under Rule 57A when classified under Chapter 69 (ceramics) instead of Chapters 84 or 85 (machines and machinery). The court referred to precedents, including the Supreme Court's decision in *Collector of Central Excise, New Delhi v. Ballarpur Industries Limited*, which clarified that materials essential to the manufacturing process, even if not found in the end product, qualify as "raw materials." The court concluded that fire bricks are used in relation to the manufacture of the final product and are not excluded from Modvat coverage.

2. Scope of the Term "Inputs":
The court examined whether the term "inputs" in Rule 57A should cover not just machines and machinery but also parts thereof. Citing *Collector of Central Excise, Bhubaneshwar v. Orient Paper Mills* and other cases, the court emphasized that anything essential for making goods marketable, including materials used indirectly in the manufacturing process, qualifies as inputs. Therefore, fire bricks used in furnaces fall within the scope of "inputs."

3. Validity of the Tribunal's Majority View:
The court analyzed whether the Tribunal erred by not following the Larger Bench decision in *A.B. Tools*, which allowed Modvat credit for ramming mass used similarly to refractory bricks. The court found that the Tribunal's majority view was incorrect and that the principles established in *A.B. Tools* should have been applied, allowing Modvat credit for fire bricks.

4. Classification of Fire Bricks:
The court deliberated whether fire bricks should be treated as raw materials or as part of the manufacturing apparatus. Referring to *Jaypee Rewa Cement v. Commissioner of Central Excise* and other judgments, the court held that fire bricks, essential for the manufacturing process of steel, qualify as inputs used "in or in relation to the manufacture" of the final product, thus eligible for Modvat credit.

5. Interpretation of Supreme Court's Observation:
The court examined the interpretation of the Supreme Court's observation in *C.C.E. v. Ballarpur Industries* regarding the use of materials in the manufacturing process versus manufacturing apparatus. The court clarified that the essential use of fire bricks in the manufacturing process of steel aligns with the Supreme Court's observation, supporting the eligibility for Modvat credit.

Conclusion:
The court concluded that fire bricks used in electric arc furnaces are not excluded from Modvat coverage under Rule 57A. The Assistant Commissioner, Commissioner (Appeals), and the Tribunal erred in disallowing Modvat credit for fire bricks. The court answered all questions referred by the Tribunal in favor of the assessee and against the Department, affirming the eligibility of fire bricks for Modvat credit.