1999 (12) TMI 511 - AT - Central Excise

Summary

Issues Involved:
1. Eligibility of Tri Ethylene Glycol (TEG) for Modvat credit under Rule 57A of the Central Excise Rules.
2. Interpretation of "used in or in relation to the manufacture" under Rule 57A.

Issue-wise Detailed Analysis:

1. Eligibility of Tri Ethylene Glycol (TEG) for Modvat Credit:

The appellants, manufacturers of polyester film, took Modvat credit for TEG used in cleaning filters, which are part of the machinery used in their manufacturing process. The department disallowed this credit, arguing that TEG did not qualify as an 'input' under Rule 57A of the Central Excise Rules. The Assistant Commissioner of Central Excise and the Commissioner of Central Excise (Appeals) upheld this disallowance, relying on the Tribunal's decision in Ester Industries Ltd. v. C.C.E., Meerut, where TEG used for cleaning filters was deemed ineligible for Modvat credit.

The appellants contested this, arguing that the cleaning of filters using TEG was essential for the manufacturing process, thereby qualifying TEG as an input eligible for Modvat credit. They cited the Tribunal's decision in J.K. Synthetics Ltd. v. C.C.E., which held that TEG used for cleaning equipment in the manufacture of polyester film and yarn was eligible for Modvat credit.

2. Interpretation of "Used in or in Relation to the Manufacture":

The lower appellate authority formulated the issue as whether TEG was used in or in relation to the manufacture of the final product under Rule 57A of the Central Excise Rules. However, it only considered whether TEG was used in the manufacture of the final product, concluding that TEG was used for maintenance of the filters and not in the manufacturing process itself, thus disallowing the credit.

The appellants argued that both lower authorities overlooked the broader interpretation of "used in or in relation to the manufacture" as provided in Rule 57A(1), which includes indirect use. They emphasized that the manufacturing process would halt without the cleaning of filters using TEG, thus making TEG an essential input.

The Tribunal's Single Member in the appellants' own case had previously held that Modvat credit was available for TEG used for cleaning filters, based on the Larger Bench decision in Sri Ramakrishna Steel Industries Ltd. v. C.C.E., Madras, which expounded that "used in relation to the manufacture" has a broad scope, encompassing materials essential for the manufacturing process even if not directly involved in the chemical or physical process.

The Tribunal observed that the decision in Ester Industries did not consider whether TEG was used in relation to the manufacture of the final products. The lower appellate authority also failed to address this broader interpretation. The Tribunal decided to follow the ratio of the decision in the appellants' own case, which adhered to the principle established in J.K. Synthetics and the Larger Bench decision in Sri Ramakrishna Steel Industries.

Conclusion:

The Tribunal set aside the order of the Commissioner (Appeals) and allowed the appeals, holding that Modvat credit is available for TEG used for cleaning filters as it is used in relation to the manufacture of the final product. The decision emphasized the broader interpretation of "used in relation to the manufacture" under Rule 57A, aligning with the principles established in previous Tribunal decisions.