1994 (5) TMI 35 - AT - Central Excise

Summary

Issues Involved:
1. Whether release paper used in the manufacture of coated cotton fabrics qualifies as an input under Rule 57A(1) of the Central Excise Rules for availing MODVAT credit.
2. Whether release paper falls within the excluded category of inputs mentioned in clauses (i) to (v) of the Explanation appended to Rule 57A.

Issue-wise Detailed Analysis:

1. Input Qualification under Rule 57A(1):
The primary issue was whether release paper used during the manufacture of coated cotton fabrics can be considered an input under Rule 57A(1) of the Central Excise Rules for the purpose of availing MODVAT credit. The process involving release paper was detailed, highlighting its use in spreading PVC paste/plastisol, heating, cooling, and eventual separation from the final product. The lower appellate authority acknowledged that release paper is an input used in relation to the manufacture of the final product. However, it denied MODVAT credit, reasoning that release paper acts as a carrier/conveyor belt at certain stages, thus falling within the excluded category of inputs.

2. Exclusion from MODVAT Credit:
The lower appellate authority's decision was based on the interpretation that the release paper, by acting as a carrier, is akin to machines, machinery, plant, equipment, apparatus, tools, or appliances used in manufacturing. The authority did not specify which category the release paper fell into but broadly inferred its exclusion.

Arguments and Precedents:
The learned Advocate, Shri Arvind P. Datar, referenced two judgments from the Northern Regional Bench (NRB) and Western Regional Bench (WRB) that directly addressed the issue of release paper and MODVAT credit. The NRB judgment in Northern India Leather Cloth Mfg. Co. v. Collector of Central Excise concluded that the release paper should be considered an input, and the department failed to prove it as equipment or appliance. Similarly, the WRB judgment in National Leather Cloth Mfg. Co. Ltd. v. Collector of Central Excise supported the view that release paper is not equipment or appliance.

Distinguishing Previous Cases:
Shri Datar distinguished the present case from the SRB's earlier decision in Collector of Central Excise, Coimbatore v. Steel Authority of India Ltd., where interleaving kraft paper used post-manufacture was denied MODVAT credit. He argued that, unlike the interleaving kraft paper, the release paper directly participates in manufacturing by transferring the silicon compound to the cotton fabric.

Tribunal's Decision:
The Tribunal concluded that the release paper, which is coated with a silicon compound and used multiple times before being discarded, directly participates in the manufacturing process. It does not merely act as a carrier or conveyor but becomes part of the final product. Therefore, it cannot be classified as a machine, machinery, plant, equipment, apparatus, tool, or appliance under the excluded category of Rule 57A. The Tribunal emphasized that the release paper does not fit the definitions of equipment, apparatus, appliance, or tool as per various dictionaries and trade parlance.

Conclusion:
The Tribunal allowed the appeals, ruling that the release paper does not fall within the excluded category of inputs under Rule 57A. Consequently, the appellants are entitled to MODVAT credit for the release paper, with consequential relief.