1991 (6) TMI 158 - AT - Central Excise

Issues Involved:
1. Eligibility of Modvat Credit on graphite anodes and titanium metal anodes used in the electrolysis of brine solution for obtaining caustic soda lye.
2. Whether these anodes fall under the excluded category of items in the explanation to Rule 57A.

Issue-wise Detailed Analysis:

1. Eligibility of Modvat Credit on Graphite Anodes and Titanium Metal Anodes:

The common issue in these appeals is whether graphite anodes and titanium metal anodes used in the electrolysis of brine solution for obtaining caustic soda lye are eligible for Modvat Credit under Rule 57A. The Department contends that these anodes fall under the excluded category of items in the explanation to Rule 57A, which includes machinery, equipment, instruments, and tools.

Arguments by the Department:
- The Department's representative, Shri Mondal, argued that the Board's clarification (M.F.D.R. No. 822/51/86-TRU, dated 21-10-1986) did not consider whether graphite electrodes go with the functioning of the electrolytic cell or into the product stream for manufacturing caustic soda lye.
- He referred to the McGraw Hill Dictionary, which defines an electrolytic cell as consisting of electrodes immersed in an electrolytic solution for carrying out electrolysis. He argued that graphite and titanium anodes are part of the electrolytic cell and hence should be considered equipment.
- He cited the Tribunal's decision in Collector of Central Excise Bombay-II v. Poysha Industrial Ltd., where items like rubber blankets and conveyor belting, which are functionally part of the machine, were held not eligible for Modvat Credit.
- He also referred to the decision in Rapsri Engg. Industries Ltd. -1991 (56) E.L.T. 449 (Tri.), where graphite rods used for stirring molten metal were considered apparatus and not eligible for Modvat Credit.

Arguments by the Respondents:
- The respondents argued that graphite and titanium anodes directly participate in the chemical reaction process to generate caustic soda, chlorine, and hydrogen, and are not merely conductors of electricity.
- They contended that the Board's instructions should be considered, which clarify that graphite electrodes are consumables and eligible for Modvat Credit.
- They also referred to previous decisions, including the Special Bench decision in Gwalior Rayon Silk Mfg. (Wvg.) Co. - 1988 (35) E.L.T. 227 (Tri.), upheld by the Supreme Court, which held that titanium metal anodes are eligible for Modvat Credit.

Tribunal's Findings:
- The Tribunal noted that the Board's instructions, though given in the context of graphite electrodes used in the manufacture of iron or steel, also apply to other electrodes used in the manufacturing process.
- It was observed that the Department had previously accepted that graphite anodes are eligible for Modvat Credit while disputing the eligibility of titanium metal anodes on the ground that they are more durable.
- The Tribunal emphasized that Rule 57A refers to goods "used in or in relation to the manufacture of final product" and does not distinguish between consumables and non-consumables.
- The Tribunal found that both graphite and titanium anodes are used in the manufacture of caustic soda lye and are notified under the Modvat scheme. The critical question was whether they fall under the excluded category of plant items.
- The Tribunal concluded that graphite and titanium anodes, which directly participate in the electrolysis process and chemical reaction resulting in the production of caustic soda, should be considered inputs used in the manufacturing process and not merely parts of equipment.

2. Whether Anodes Fall Under the Excluded Category of Items in Rule 57A:

- The Tribunal considered the technical definitions and the functionality of the anodes in the electrolysis process. It was found that the anodes are integral to the chemical reaction process and cannot be equated with components of machinery like rubber blankets or lithographic plates.
- The Tribunal also referred to previous decisions, including the Special Bench decision in Gwalior Rayon Silk Mfg. (Wvg.) Co., which was upheld by the Supreme Court, affirming that titanium metal anodes are eligible for Modvat Credit.
- The Tribunal rejected the Department's argument that the Special Bench decision related only to Notification No. 201/79 and not to Rule 57A. It was held that the Supreme Court's rejection of the Department's appeal on the ground that titanium anodes are plant items supports the eligibility of such anodes for Modvat Credit under Rule 57A.

Conclusion:
The Tribunal dismissed all four appeals from the Revenue, upholding the eligibility of Modvat Credit for both graphite anodes and titanium metal anodes used in the electrolysis process for manufacturing caustic soda lye. The Tribunal reaffirmed its earlier decision in the case of Gujarat Alkalies & Chemicals Ltd., emphasizing that these anodes are inputs used in the manufacturing process and do not fall under the excluded category of plant items in Rule 57A.

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