1988 (12) TMI 179 - AT - Central Excise

Issues Involved:
1. Entitlement to Proforma Credit under Notification No. 201/79-C.E., as amended by Notification No. 105/82-C.E.
2. Classification of Sodium Sulphate, Alumina Ferric, Rosin, Pulverised Guar Gum, Sodium Hexa Meta Phosphate, Formaldehyde, and Glyoxal 40% as raw materials.

Detailed Analysis:

1. Entitlement to Proforma Credit under Notification No. 201/79-C.E., as amended by Notification No. 105/82-C.E.
The primary issue in this case is whether the appellants are entitled to Proforma Credit under the specified notifications for the duty paid on certain chemicals used in the manufacture of paper and paper board. The Superintendent of Central Excise, Range II, Jamuna Nagar, initially denied this benefit, arguing that the items in question were not raw materials and were burnt and not retained in the paper. However, the Assistant Collector of Central Excise, Ambala, in his Order-in-Original No. 53-SE/86, dated 27-6-1986, held that these inputs were essential raw materials and thus entitled to the benefit of the notification. This decision was later reviewed and set aside by the Collector of Central Excise (Appeals), who remanded the matter for re-adjudication. The appellants have challenged this order, asserting that their case is covered by precedent decisions of the Tribunal.

2. Classification of Sodium Sulphate, Alumina Ferric, Rosin, Pulverised Guar Gum, Sodium Hexa Meta Phosphate, Formaldehyde, and Glyoxal 40% as Raw Materials
The appellants argued that the chemicals in question should be considered "raw materials" as they are essential for the manufacturing process, even if they do not remain in the final product. They cited previous Tribunal decisions, including Seshasayee Paper and Boards Ltd. v. Collector of Central Excise and Sirsilk Limited, Sirpur-Kaghaznagar v. Collector of Central Excise, Hyderabad, which held that chemicals used in the manufacturing process are to be treated as raw materials if they are essential for the process, regardless of whether they are present in the final product.

The respondent, represented by Shri Durghayya, argued against this classification, relying on Tribunal decisions such as Collector of Central Excise, Chandigarh v. Kashmir Vanaspati and Amrit Vanaspati Company v. Collector of Central Excise, Meenit, where catalysts used as cleaning agents were not considered raw materials. The Supreme Court decision in Deputy Commissioner of Sales Tax (Law), Board of Revenue (Taxes), Emakulam v. M/s. Thomas Stephen & Co. Ltd., Quilon, was also cited, where cashew shells used as fuel were not considered raw materials.

Tribunal's Findings:
The Tribunal reviewed the functions of the disputed items in the manufacturing process as detailed by the Assistant Collector of Central Excise, Ambala:
- Sodium Sulphate: Reduced in the chemical recovery cycle to form Sodium Sulphide, essential for the digestion operation.
- Alumina Ferric: Functions as a precipitant and retention aid, forming a critical part of the sizing agent.
- Rosin: Along with Alumina Ferric, forms a sizing agent imparting resistance to liquid penetration.
- Guar Gum: Used to inhibit flocculation and improve sheet formation and strength properties.
- Sodium Hexa Meta Phosphate: Used as a dispersing agent in coating formation.
- Formaldehyde: Used as a preservative in coating formation.
- Glyoxal 40%: Imparts wet strength properties to coated papers for better offset printing results.

The Tribunal concluded that each of these items has a definite function essential in the manufacture of paper or paper board and gets consumed in the process. They distinguished the facts of this case from those involving catalysts used as cleaning agents and the Supreme Court case involving fuel, noting that these items are integral to the manufacturing process and should be considered raw materials.

Conclusion:
The Tribunal held that the benefit of Notification No. 201/79-C.E., as amended by Notification No. 105/82-C.E., is admissible to the appellants. They set aside the order of the Collector (Appeals) and allowed the appeal, affirming that the chemicals in question qualify as raw materials essential for the manufacturing process of paper and paper board.

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