1990 (2) TMI 199 - AT - Central Excise

Summary

Issues:
- Appeal against Order-in-Appeal confirming demand of wrongly availed duty credit under MODVAT scheme for oxygen gas used in ship breaking process.
- Interpretation of Rule 57A of Central Excise Rules regarding eligibility for credit on inputs.
- Determining whether oxygen gas used in ship breaking process qualifies for MODVAT credit.

Analysis:
The appeal before the Appellate Tribunal CEGAT, Bombay challenged the Order-in-Appeal confirming the demand of Rs. 30,165.47 as wrongly availed duty credit under the MODVAT scheme for oxygen gas used in ship breaking. The appellants argued that ship breaking is a manufacturing process, and the oxygen gas is essential for cutting the ship to produce final products like sheets and re-rollable scraps. They relied on legal precedents to support their claim that oxygen gas should be considered an input eligible for MODVAT credit. However, the department contended that oxygen gas was merely used to run the gas cutter, which falls under the excluded category of tools or appliances under Rule 57A.

The Tribunal examined whether the oxygen gas used in the ship breaking process qualified for MODVAT credit under Rule 57A. It emphasized that the use of oxygen gas must be assessed in relation to its role in the manufacturing process. The Tribunal noted that the oxygen gas was consumed in the gas cutter, which was considered a tool or apparatus used for cutting, and thus fell within the excluded category under Rule 57A. Despite arguments citing previous decisions, including one involving acetylene gas, the Tribunal concluded that the oxygen gas used in ship breaking did not qualify for MODVAT credit as it was not directly related to the manufacturing of the final product, but rather to the disintegration of the input (ship).

In its decision, the Tribunal dismissed the appeal, upholding the orders of the lower authorities. It clarified that while oxygen gas was a consumable item used for cutting in the ship breaking process, its nature of use did not meet the criteria for MODVAT credit eligibility. The Tribunal distinguished the case from previous decisions involving different circumstances, emphasizing that the oxygen gas was used in breaking the ship and not in the manufacturing of the final product. Therefore, the Tribunal concluded that the oxygen gas did not qualify for MODVAT credit under Rule 57A due to its usage in disintegrating the input (ship) rather than directly contributing to the manufacture of the final product.