1993 (11) TMI 162 - AT - Central Excise

Summary

Issues:
- Eligibility of Modvat credit for specific items used in the manufacturing process
- Interpretation of the usage of steam in relation to the manufacturing of final products
- Consideration of time bar aspect in the demand for reversal of credit
- Nexus between chemicals used in water treatment for steam generation and manufacturing processes
- Determination of Modvat benefit for chemicals used in power generation through turbines

Analysis:

The judgment by the Appellate Tribunal CEGAT, Bombay involves two appeals concerning the eligibility of Modvat credit for certain items used in the manufacturing process. The appeals revolve around the issue of whether Hydrochloric acid, Sulphuric Acid, Caustic soda lye and flakes, and synthetic resins are eligible for Modvat credit. These items are used for demineralization of water before it is pumped into boilers for steam production, which is further utilized in the manufacturing of soda ash, sodium bicarbonate, and caustic soda. The lower authorities had disallowed the Modvat credit, citing that the steam generated, which is the final product, is exempt from Central Excise duty.

The appellant argued that since steam is an intermediate product and is used in various manufacturing processes, the benefit of Rule 57D should be available. They contended that the steam generated is integral to the manufacturing processes of the final products. On the other hand, the Respondent emphasized that the chemicals are necessary only for water purification to prevent scale formation in the boiler during steam generation. They also highlighted that a part of the steam is used for power generation and not directly in the manufacturing processes.

After considering the factual position and legal arguments presented by both sides, the Tribunal held that chemicals used in water treatment directly for manufacturing processes such as filtration, distillation, and evaporation are eligible for Modvat credit. However, chemicals used in steam generation through turbines for power generation were not considered to have a nexus with the manufacturing processes of the final products. The Tribunal emphasized the importance of determining the percentage of steam used directly in manufacturing processes to ensure accurate Modvat credit allocation.

The Tribunal also addressed the time bar aspect, restricting any demand for reversal of credit to a period of six months prior to the receipt of the show cause notice. It was noted that the chemicals used for obtaining soft water necessary for steam generation should not be equated with maintenance-related materials like anticorrosion paints or lubricants.

In conclusion, the Tribunal remanded the cases back to the Assistant Collector, limiting the demand for duty paid on chemicals used in steam production to the usage in turbines for power generation. They directed that Modvat credit should be granted for the part of steam directly utilized in the manufacturing processes other than in turbines.