1997 (12) TMI 299 - AT - Central Excise

Summary

Issues:
- Denial of Modvat credit for Kem Water (water treatment chemical) used in the manufacturing process of Nylon Polyester Filament Yarn.

Analysis:
The judgment by the Appellate Tribunal CEGAT, New Delhi dealt with the denial of Modvat credit for the use of Kem Water, a water treatment chemical, in the manufacturing process of Nylon Polyester Filament Yarn. The appellants argued that air-conditioning was essential for producing the yarn under specific temperature and humidity conditions from spinning to twisting processes. The appellants utilized Kem Water in their cooling tower to maintain the required air-conditioning and humidity levels for processing the yarn effectively. They contended that Kem Water was crucial for anti-corrosion and preventing bacterial growth in the cooling water, thereby contributing to the efficiency of the manufacturing plant. The appellants relied on a previous Tribunal decision in the case of ICI Ltd. v. C.C.E., Bombay-III, which allowed Modvat credit for similar water treatment chemicals used for steam generation or cooling water.

The respondent Revenue, represented by Shri Sanjiv Srivastava, opposed the appellants' claim and supported the lower authorities' decision to deny Modvat credit for Kem Water. However, the Tribunal emphasized the significance of Kem Water as an input in the manufacturing process, especially for maintaining the required efficiency in the cooling system. Referring to the precedent set by the Tribunal in the ICI Ltd. case, the judgment highlighted that chemicals added to water for achieving the necessary cooling system efficiency are eligible inputs when the cooling system is an integral part of the manufacturing process.

Ultimately, the Tribunal ruled in favor of the appellants, setting aside the denial of Modvat credit for Kem Water and the associated penalty. The judgment aligned with the decision in the ICI Ltd. case, where Modvat benefit was allowed for water treatment chemicals utilized for steam generation or cooling water. By considering the essential role of Kem Water in ensuring the operational efficiency of the cooling system, the Tribunal concluded that the denial of Modvat credit was unjustified. Therefore, the appeals were allowed, granting the appellants the benefit of Modvat credit for Kem Water in their manufacturing process of Nylon Polyester Filament Yarn.