1991 (10) TMI 139 - AT - Central Excise

Summary

Issues Involved:
1. Eligibility for MODVAT credit for chemicals and resins used in water treatment.
2. Eligibility for MODVAT credit for felt used in paper manufacturing.
3. Eligibility for MODVAT credit for wire netting of stainless steel and phosphor bronze used in paper manufacturing.

Summary:

Issue 1: Eligibility for MODVAT credit for chemicals and resins used in water treatment
The department contended that chemicals and resins used for water treatment are not used in the manufacture of paper but only for purifying water to prevent choking and formation of scales in the boiler and pipes, thus not qualifying for MODVAT credit u/s Rule 57A of the Central Excise Rules. However, the Tribunal upheld that these chemicals and resins are essential for the manufacturing process of paper, as they ensure the water used is of proper PH level, which is crucial for the paper's quality. The Tribunal referenced the Supreme Court's decision in J.K. Cotton Spinning & Weaving Mills Pvt. Ltd. v. Sales Tax Officer, which held that processes integrally related to the ultimate manufacture of goods qualify for MODVAT credit.

Issue 2: Eligibility for MODVAT credit for felt used in paper manufacturing
The department argued that felt is in the nature of equipment or machinery and does not get used up during the process, thus falling under the exclusion category in Rule 57A. The Tribunal, however, determined that felt is not machinery but a textile article classified under Heading 59.09 of the Central Excise Tariff, making it eligible for MODVAT credit. The Tribunal emphasized that felt is a consumable item crucial for the paper manufacturing process, used for moving the wet web of paper to the dryer house and imparting surface properties to the paper.

Issue 3: Eligibility for MODVAT credit for wire netting of stainless steel and phosphor bronze used in paper manufacturing
The department's stance was that wire netting is a part of machinery and thus not eligible for MODVAT credit. The Tribunal disagreed, stating that wire netting is not machinery but an essential input in the paper manufacturing process. It referenced previous decisions, including the Andhra Pradesh Paper Mills case, to support that items used in the manufacturing process, even if not part of the final product, qualify for MODVAT credit. The Tribunal concluded that wire netting is used in the manufacturing process and not merely in relation to the machinery.

Conclusion:
The Tribunal dismissed the department's appeal and allowed the appeal of M/s. Straw Products Limited, affirming that chemicals and resins used for water treatment, felt, and wire netting of stainless steel and phosphor bronze are eligible for MODVAT credit as they are used in or in relation to the manufacture of paper.