2010 (3) TMI 161 - HC - Central Excise

Cenvat / Modvat Credit - eligible inputs - Whether use of Oxygen/acetylene gases in cutting of scrap of Iron & Steel into smaller pieces to be fed into a furnace is a part of integrated process connected with the ultimate production of final products namely steel ingots and other steel castings and is essentially required in process of manufacture of final products and whether oxygen/acetylene gases are eligible inputs for modvat credit? Held that the assessee is entitled to avail the modvat credit on the inputs/material used in or in relation to the manufacture of the final products whether directly or indirectly and whether contained in the final product or not. - In this case, the use of oxygen/acetylene gases in cutting of scrap of Iron & Steel into smaller pieces to be fed into a furnace is a part of integrated process connected with the ultimate production of final products namely steel ingots and other steel castings - the oxygen/acetylene gases used in cutting of scrap of iron and steel into smaller pieces to be fed into a furnace cannot be a material, which is used in manufacturer of final products and hence the assessee was entitled to claim modvat credit - Resultantly, the question posed is answered in favour of the assessee and against the revenue.

Summary

Issues:
Whether the use of Oxygen/acetylene gases in cutting scrap of Iron & Steel into smaller pieces for a furnace is part of an integrated process connected with the production of final products and eligible for modvat credit.

Analysis:
The Customs, Excise & Gold (Control), Appellate Tribunal referred a substantial question of law to the High Court regarding the eligibility of Oxygen/acetylene gases used in cutting scrap of Iron & Steel for modvat credit. The manufacturer's entitlement to claim modvat credit on finished excisable goods and inputs used in the manufacture of final products is governed by Rule 57-A. The provision allows credit on inputs used directly or indirectly in the manufacture of final products, excluding certain items like machines and capital goods. The manufacturer can avail modvat credit on inputs used in or in relation to the manufacture of final products, whether contained in the final product or not.

The High Court cited the Supreme Court case of Collector of Central Excise, Bangalore vs. Escorts Mahle Ltd., where it was held that materials used in the manufacture of final products are eligible for modvat credit as inputs. The Court also referred to a Division Bench decision in Collector of C.Ex.Chandigarh v. Bhushan Alloys & Steels Ltd., which allowed modvat credit for various materials used in the manufacturing process. Based on these precedents, the High Court concluded that Oxygen/acetylene gases used in cutting scrap of iron and steel are integral to the production of final products like steel ingots and steel castings. Therefore, the gases qualify as inputs eligible for modvat credit. Consequently, the Court ruled in favor of the assessee, allowing the claim for modvat credit on the gases used in the manufacturing process.

In summary, the High Court's judgment clarified that Oxygen/acetylene gases used in cutting scrap of Iron & Steel into smaller pieces for a furnace are considered essential inputs in the manufacturing process of final products like steel ingots and steel castings. The Court relied on established legal principles and precedents to determine the eligibility of these gases for modvat credit, ultimately ruling in favor of the assessee and against the revenue authorities.