2000 (7) TMI 112 - AT - Central Excise

Summary

Issues Involved:
1. Eligibility of Heat Transfer Oil (HT Oil) for Modvat credit under Rule 57A of the Central Excise Rules, 1944.

Detailed Analysis:

1. Eligibility of HT Oil for Modvat Credit:

The primary issue referred to the Larger Bench was whether HT Oil used by the appellants in the manufacture of Linear Alkyl Benzene (LAB) and Heavy Alkylate during July-December 1989 was an eligible input for Modvat credit under Rule 57A of the Central Excise Rules, 1944.

Background and Conflicting Decisions:
The referring Bench noted conflicting decisions from different Benches of the Tribunal:
- Mysore Petrochemicals Ltd. v. CCE: Held 'Salt Melt' used in a heat exchanger was not eligible for Modvat credit.
- Kopran Ltd. v. CCE: Held liquid nitrogen used for creating a chilling and inert atmosphere in the reactor vessel was eligible for Modvat credit.
- Eastern Naphtha-Chem Ltd. v. CCE: Held 'hot thermex' used to maintain the required temperature for chemical reactions was eligible for Modvat credit.

The referring Bench found HT Oil comparable with the inputs in question in these cases and sought clarity from a Larger Bench.

Appellants' Position:
The appellants argued that HT Oil was used as a heating medium essential for the manufacturing process of LAB. They explained that HT Oil was heated to a high temperature and circulated in the plant to provide necessary heat for various stages of the manufacturing process. The quality and purity of LAB depended on the separation process, which required the use of HT Oil. The appellants contended that HT Oil should be considered an input used "in or in relation to" the manufacture of LAB and thus eligible for Modvat credit.

Department's Position:
The Department argued that HT Oil was used only to make the manufacturing apparatus functional and did not react with any raw material. They contended that HT Oil was part of the manufacturing apparatus and thus excluded from the category of inputs under Rule 57A. The Department also suggested that HT Oil could be considered a fuel, which was excluded from Modvat credit eligibility.

Tribunal's Analysis:
The Tribunal examined the use of HT Oil in the manufacturing process and found that it played a pervasive role. Without HT Oil, it was impossible to manufacture LAB. The Tribunal drew parallels with the decision in Shri Ramakrishna Steel Industries Ltd. v. CCE, where an article with a significant role in manufacturing was considered an input under Rule 57A. The Tribunal also considered the decisions in Union Carbide India Ltd. v. CCE and Modi Rubber Ltd. v. CCE, which expanded the scope of "in or in relation to the manufacture" to include items used in the manufacturing apparatus.

The Tribunal found that HT Oil, used to provide necessary heat for chemical and physical processes in the manufacturing of LAB, had a direct role in the manufacturing process. Thus, HT Oil met the criteria of being used "in or in relation to the manufacture" of LAB and was eligible for Modvat credit.

Conclusion:
The Tribunal concluded that HT Oil used by the appellants for manufacturing LAB was an input eligible for Modvat credit under Rule 57A. The Tribunal disagreed with the decision in Mysore Petrochemicals Ltd. v. CCE and aligned with the decisions in Kopran Ltd. v. CCE and Eastern Naphtha-Chem Ltd. v. CCE.

Further Proceedings:
The referred issue having been decided, the appeal was sent back to the regular Bench for a decision on the remaining issues.