1997 (1) TMI 260 - AT - Central Excise

Summary

Issues Involved:
1. Admissibility of Modvat credit on Mortars, Refining Flux, Bottom Pouring Sets, Refractory Bricks, Mozolex, Refractory Castables, and Miscellaneous Chemicals.

Issue-wise Detailed Analysis:

1. Admissibility of Modvat Credit on Specific Items:
The primary issue in the appeal was the decision of the Commissioner to disallow Modvat credit on several items, namely Mortars, Refining Flux, Bottom Pouring Sets, Refractory Bricks, Mozolex, Refractory Castables, and Miscellaneous Chemicals. The Commissioner had issued 23 show cause notices and concluded that these items were used for maintaining the arc furnace and thus fell under the excluded category for Modvat credit.

2. Appellants' Arguments:
The appellants argued that under Rule 57A, the expression "in relation to" has a wide connotation and that the definition of inputs includes items actually used in the manufacturing process. They cited several judgments, including the Apex Court's decision in CCE v. Eastend Paper Industries Ltd., to support their claim that anything entering into and forming part of the manufacturing process or required to make the article marketable should be deemed as raw material or component part of the end product. They contended that the items in question were used in the manufacture of ingots and billets and should be eligible for Modvat credit.

3. Respondent's Arguments:
The respondent, represented by the learned JDR, maintained that the Commissioner had rendered specific findings for each item after examining its use and function in the manufacturing process. They argued that the Modvat credit was rightly denied and prayed for the appeal to be rejected.

4. Examination of Each Item:
The Tribunal examined the function of each item in the manufacturing process:
- Mortars: Used as layers in the lining of arc furnaces and for joining fire bricks, requiring frequent replacement.
- Refining Flux: Refractory materials used in the lining and maintenance of arc furnaces.
- Bottom Pouring Sets: Refractory items used to connect different molds during the pouring of molten metal.
- Refractory Bricks: Form part of the electric arc furnace.
- Mozolex: Refractory materials forming part of the electric furnace.
- Garnex Board: Used in the manufacture of continuous castings billets.
- Miscellaneous Chemicals: Used in the lining of furnaces, requiring replacement for repairs.
- Refractory Castables: Used in the lining for maintaining the furnace, requiring replacement during operations.

5. Tribunal's Findings:
The Tribunal found that the items could broadly be categorized as refractory or refractory materials. It referred to the case of Raipur Alloys, where it was determined that refractory materials are construction materials for the furnace and not raw materials or inputs for steel manufacture. The Tribunal concluded that these materials are not part of the molten metal bath or the charge and do not qualify as raw materials or inputs for Modvat credit.

6. Larger Bench Judgment:
The Tribunal also considered the judgment of the Larger Bench in the case of Union Carbide, which clarified that the exclusion clause in Rule 57A does not apply to spare parts unless they are self-contained or complete units. The Bench emphasized that the purpose of Rule 57A is to grant Modvat credit to manufacturers using specified goods in the manufacturing process.

7. Conclusion:
Following the ratio of the Larger Bench's judgment, the Tribunal set aside the Commissioner's order and allowed the appeal. It concluded that the items in question should be eligible for Modvat credit, and any consequential relief would be admissible to the appellants in accordance with the law.