2010 (3) TMI 592 - HC - Central Excise

Modvat / Cenvat credit on input - oxygen/acetylene gases used in cutting of scrap of Iron & Steel into smaller pieces used in production of final products namely steel ingots 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 - 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 manufacturer can avail the modvat credit.

Summary

Issues:
Interpretation of Rule 57-A for granting incentives to manufacturers regarding modvat credit on inputs used in or in relation to the manufacture of final products.

Analysis:
The judgment revolves around the interpretation of Rule 57-A concerning the entitlement of manufacturers to claim modvat credit on inputs used in or in relation to the manufacture of final products. The provision allows manufacturers to claim credit on specified duties for inputs used directly or indirectly in the manufacturing process. Section 57B specifies that credit can be claimed on inputs used within the factory of production, excluding certain items like machines and capital goods.

The court referred to the decision in Commissioner of Central Excise, Bangalore v. Escorts Mahle Ltd., where it was established that materials used in the manufacture of final products are eligible for modvat credit as inputs. This sets the precedent for considering various materials and components used in the production process as eligible for credit.

In the current case, the use of oxygen/acetylene gases in cutting scrap iron and steel into smaller pieces for feeding into a furnace was deemed an integral part of the manufacturing process of steel ingots and steel castings. The court considered this process as connected with the ultimate production of final products, aligning with the decision in Escorts Mahle Ltd.'s case. The judgment also cited a previous case involving Commissioner of C.Ex. Chandigarh v. Bhushan Alloys & Steels Ltd., where modvat credit was allowed for various materials used in the production process.

Consequently, the court ruled in favor of the assessee, stating that the use of oxygen/acetylene gases in cutting scrap iron and steel does not qualify as a material used in the manufacture of final products. Therefore, the assessee was entitled to claim modvat credit for such inputs, resulting in a decision against the revenue authorities.

This judgment clarifies the scope of modvat credit entitlement for manufacturers under Rule 57-A and reinforces the principle that various inputs used in the manufacturing process, including gases and materials for cutting scrap, can be considered eligible for claiming credit, provided they are integral to the production of final goods.