1994 (1) TMI 159 - AT - Central Excise

Issues Involved:
1. Eligibility of MODVAT Credit for molybdenum wire (molywire).
2. Interpretation of Rule 57A and the exclusion clause.
3. Tribunal's authority to reject claims based on grounds not disclosed in the show cause notice.
4. Distinction between "tool" and "appliance" under Rule 57A.
5. Consideration of the usage of inputs in the manufacturing process.

Detailed Analysis:

1. Eligibility of MODVAT Credit for Molybdenum Wire (Molywire):
The applicants, M/s. Apar Ltd., sought MODVAT Credit for duty paid on molywire used as a core (mandrel) for winding tungsten wire in the manufacture of electric lighting bulbs. The Tribunal initially held that molywire could be regarded as a mechanical appliance and thus fell under the exclusion clause of Rule 57A. However, the Tribunal allowed the appeal on the ground of time bar of the demand, despite the adverse finding on merits.

2. Interpretation of Rule 57A and the Exclusion Clause:
The applicants argued that molywire should not be considered an appliance but a component used in the manufacturing process, citing Supreme Court decisions in Eastend Paper Industries and Ballarpur Paper Industries. They contended that the exclusion clause should not apply to molywire. The Tribunal, however, emphasized that the exclusion clause in Rule 57A specifically excludes items such as machines, machinery, plant, equipment, apparatus, tools, or appliances used in the manufacturing process from MODVAT Credit eligibility.

3. Tribunal's Authority to Reject Claims Based on Grounds Not Disclosed in the Show Cause Notice:
The applicants contended that the Tribunal's finding that molywire is an appliance was not disclosed in the show cause notice, which initially alleged that molywire was a tool. The Tribunal justified its interpretation by referring to the exclusion clause and the dictionary meanings of "tools" and "appliances," which convey similar meanings. The Tribunal held that no serious prejudice would be caused to the applicants by raising this point of law for the High Court's consideration.

4. Distinction Between "Tool" and "Appliance" Under Rule 57A:
The applicants argued that the terms "tool" and "appliance" should not be treated as synonymous or interchangeable. The Tribunal, however, found that both terms are devices for performing a specific task and thus justified in holding molywire as an appliance. The Tribunal referred to the Concise Oxford Dictionary definitions to support its interpretation.

5. Consideration of the Usage of Inputs in the Manufacturing Process:
The Tribunal considered the usage of molywire as a mandrel for coiling tungsten wire, which is removed after coiling and does not become part of the final product. The Tribunal emphasized that the exclusion clause in Rule 57A necessitates considering the usage of items claimed as inputs. The Tribunal cited the Supreme Court decision in Star Paper Mills, which considered the usage of paper cores in different contexts, to support its stance that usage cannot be ignored when interpreting the exclusion clause.

Conclusion:
The Tribunal proposed the following question for the High Court of Gujarat's consideration:
"Whether in the facts and circumstances of the case, the Tribunal is correct in denying the MODVAT benefit in respect of duty paid on Molywire used for coiling tungsten wire to form filament, holding it as a mechanical appliance and hence hit by explanation to Rule 57A, taking into account its usage, as a mandrel for coiling tungsten wire and whether for purposes of interpreting the items figuring in the exclusion clause of Explanation to Rule 57A, it is legally permissible to go into the usage of items claimed as inputs for benefit under Rule 57A, as has been done by the Tribunal?"

The registry was instructed to draw up the statement of facts and send the papers to the Hon'ble High Court of Gujarat for deciding the point of reference.

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