1992 (8) TMI 187 - AT - Central Excise

Summary

Issues:
Whether the salt-melt used for heat exchange in an exothermic reaction is eligible for Modvat Credit as an input in the manufacture of a specified finished product.

Detailed Analysis:
The appeal before the Appellate Tribunal CEGAT, Madras, challenges the order of the Collector of Central Excise (Appeals), Madras. The central issue is whether the salt-melt, utilized for heat exchange in an exothermic reaction, qualifies for Modvat Credit as an input related to the production of the specified end product. The lower authority contended that the material is used for maintaining temperature in appliances and, therefore, not eligible for Modvat Credit. The appellants submitted an affidavit by their Vice President (Technical) detailing the material's usage. However, the Tribunal declined to consider the affidavit as the facts regarding the material's use were not disputed.

The appellants argued that they manufacture Phthalic Anhydride from Orthoxylene, involving an exothermic reaction where excess heat is removed using salt-melt in the heat exchanger. They claimed that the salt-melt, comprising sodium nitrate and potassium nitrate, is stable but loses its heat exchange capacity over time due to thermal action. The appellants asserted that since the salt-melt is crucial for maintaining the desired temperature in the reactor, it should be considered as used in or in relation to the manufacturing process of the specified end-product under Rule 57A of the Central Excise Rules, 1944. They cited various case laws supporting a broad interpretation of the term "in or in relation to" to allow Modvat Credit for similar inputs used in manufacturing processes.

On the contrary, the Department's representative contended that the salt-melt is not part of the manufacturing stream of the finished product and, therefore, Modvat Credit should be denied. The Department supported the lower authority's reasoning, emphasizing the lack of justification for granting Modvat Credit.

The Tribunal noted that the salt-melt is not an in-process material and does not participate in the reaction. It is solely used in the heat exchanger to dissipate excess heat generated during the reaction, making the apparatus functional. Drawing an analogy to refrigerated gas in a refrigeration system, the Tribunal concluded that the salt-melt's purpose is to maintain the apparatus's functionality rather than directly contribute to the manufacturing process. Consequently, the appeal was dismissed, and the cross objection was rejected as misconceived in law.