2001 (7) TMI 568 - AT - Central Excise

Summary

Issues involved:
1. Interpretation of Rule 57A of the Central Excise Rules regarding the eligibility of interleaving kraft paper as an input for MODVAT credit.
2. Determination of whether interleaving kraft paper used in the manufacture of stainless steel strips can be considered an input under Rule 57A.
3. Analysis of whether the kraft paper qualifies as equipment or appliance under the explanation to Rule 57A.

Detailed Analysis:
1. The Appellate Tribunal considered an appeal filed by the Collector of Central Excise against the grant of Modvat in relation to interleaving kraft paper used in the manufacture of stainless steel sheets. The Tribunal held that the kraft paper, used for protection against scratches during the coiling process, did not qualify as an input under Rule 57A as it was excluded from the definition of 'input' based on its function as equipment or appliance in the manufacturing process. Consequently, the appeal of the Revenue was allowed, setting aside the previous order.

2. Subsequently, the PSU unit SAIL filed a Reference application to the High Court challenging the Tribunal's decision. The High Court considered whether the interleaving kraft paper, crucial for preventing defects and corrosion in stainless steel strips, could be deemed an input under Rule 57A. The High Court determined that the kraft paper, being used in the factory for the manufacture of stainless steel coils and sheets, qualified as an input under Rule 57A, contrary to the Tribunal's earlier decision.

3. The High Court's judgment emphasized that the kraft paper's usage within the manufacturing process, essential for maintaining product quality, warranted its classification as an input under Rule 57A. The Court also rejected the notion that the kraft paper could be categorized as equipment or appliance, emphasizing its role as a necessary component for the end product. Consequently, the High Court directed the Tribunal to pass a final order in accordance with the ruling, granting the assessee the benefit of MODVAT credit for the interleaving kraft paper used in the manufacturing process of stainless steel strips.