1991 (3) TMI 285 - AT - Central Excise

Summary

Issues:
1. Eligibility of thinners for Modvat credit under the Modvat Rules.

The appeal before the Appellate Tribunal CEGAT, Madras involved the question of whether thinners used in diluting paint for the manufacture of vacuum cleaners would be entitled to Modvat credit under the Modvat Rules. The Collector of Central Excise, Coimbatore, filed the appeal against the order of the Collector of Central Excise (Appeals), Madras. The respondent did not appear, requesting the matter to be decided based on records and the reasoning in the impugned order. The key contention was that thinners, being used to dilute paint for spraying on vacuum cleaners, should not be considered as an input in the manufacture of vacuum cleaners. The Finance Ministry's communications clarified that certain items, including thinners, may not qualify for Modvat benefit. However, the Ministry later opined that thinners used in paints, except when falling under Chapter 27 of the Central Excise Tariff, should be eligible for Modvat credit. In the present case, the Asstt. Collector categorized the thinners under Chapter 38.14, making them eligible for Modvat credit. The Tribunal held that thinners used in spray painting vacuum cleaners should be considered an input in the manufacture of vacuum cleaners for Modvat credit eligibility, thereby dismissing the appeal.

Member (T) concurred with the view of Member (J) and highlighted the Ministry's subsequent instructions stating that Modvat credit should generally be available for duty paid on thinners used in paints, except when classified under Chapter 27. The Tribunal noted that the thinners in question were classified under Chapter 38.14 and were specified inputs eligible for Modvat credit. It was established that the thinners were used as diluents to make the paint suitable for spray painting vacuum cleaners. The Tribunal emphasized that the thinners did not create a new product but only diluted the paint for use in manufacturing vacuum cleaners. Considering that vacuum cleaners required spray painting before being marketed, and both paints and thinners were eligible for Modvat credit, the Tribunal concluded that thinners were indeed eligible for Modvat credit under the expression "used in or in relation to the manufacture of the final product." Therefore, the instructions from the Ministry superseded the earlier opinion, and the Tribunal upheld the eligibility of thinners for Modvat credit in the present case.

In conclusion, the Appellate Tribunal CEGAT, Madras ruled that thinners used in spray painting vacuum cleaners were considered an input in the manufacture of vacuum cleaners, making them eligible for Modvat credit under the Modvat Rules. The judgment emphasized the classification of thinners under Chapter 38.14, their role as diluents in paint, and their essential contribution to the manufacturing process of vacuum cleaners. The decision aligned with the Ministry's instructions and the interpretation of the expression "used in or in relation to the manufacture of the final product" under Rule 57A of the Modvat Rules.