1999 (6) TMI 185 - AT - Central Excise

Summary

Issues Involved:
1. Eligibility for exemption under Notification No. 217/86 for "steam."
2. Classification of "steam" as an input, intermediate product, or by-product.
3. Eligibility for Modvat credit on inputs used in the manufacture of "steam."

Detailed Analysis:

1. Eligibility for Exemption under Notification No. 217/86 for "Steam":

The respondents filed a classification list for their product "steam" under sub-heading 2851.00 of the CETA, 1985, claiming exemption under Notification No. 217/86. The Assistant Collector rejected this claim, stating that "steam" is neither an input nor an intermediate product in any of the manufacturing processes declared by the assessees and is instead exempt under Notification 31/89. The Collector (Appeals) disagreed, stating that a combined reading of Rule 57D(2) and Notification 217/86 shows eligibility for Modvat on inputs used in the manufacture of steam, which is further used in the final product's manufacture. The Tribunal upheld the Collector's view, noting that steam is an intermediate product in the manufacture of S.O. Dyes and Organic Chemicals.

2. Classification of "Steam" as an Input, Intermediate Product, or By-Product:

The Assistant Collector classified "steam" as a by-product, not essential for the manufacturing process of the final products, and stated that the only input for steam would be water, not chemicals like Ammonia, Sodium Sulphide, etc. The Collector (Appeals) and the Tribunal disagreed, classifying "steam" as an intermediate product necessary for manufacturing S.O. Dyes and Organic Chemicals. The Tribunal cited the manufacturing process of steam, which involves treating natural water with various chemicals, and its use in processes like sulphonation and aminolysis reactions.

3. Eligibility for Modvat Credit on Inputs Used in the Manufacture of "Steam":

The respondents claimed Modvat credit for inputs like Sulphuric Acid, Ammonia Gas, Caustic Soda flakes, and Sodium Sulphide used in manufacturing steam. The Assistant Collector denied this, but the Collector (Appeals) allowed it, applying Rule 57D(2), which states that credit of specified duty on inputs shall not be denied on the ground that intermediate products are exempt from duty. The Tribunal upheld this view, referencing previous cases like Polychem Ltd. v. CCE, Pune, and High Tech. Carbon v. CCE, Allahabad, which supported the eligibility of Modvat credit for inputs used in the manufacture of intermediate products.

Separate Judgments:

The Vice President opined that the Assistant Collector wrongly rejected the benefit of Notification 217/86 and that the Collector was justified in referring to it. However, he noted that Modvat provisions are independent of Notification 217/86 and suggested that if Modvat was admissible, it should be examined separately by the competent authority. The matter was remanded to the Assistant Collector for reconsideration in accordance with the law.

Majority Order:

In view of the majority opinion, the matter was remanded to the Assistant Collector for reconsideration in accordance with the law.