Modvat - Clarifications regarding allowing credit of duty paid on electrodes - Central Excise - B. 22/51/86-TRU

Modvat - Clarifications regarding allowing credit of duty paid on electrodes Letter No. B. 22/51/86-TRU Dated 21-10-1986 Government of India Ministry of Finance (Department of Revenue) New Delhi Subject : Modvat - Clarifications regarding allowing credit of duty paid on electrodes The undersigned is directed to state that doubts have been raised whether Modvat credit can be allowed in respect of duty paid on graphite electrodes used in the manufacture of iron and steel products, and carbon electrodes used in the manufacture of aluminium. 2. It is understood that graphite electrodes is a consumable item used in the manufacture of iron and steel in mini steel plants. The carbon content of the molten metal also includes carbon released from graphite electrodes. Ministry of Steel and Mines have also confirmed that graphite electrode is a consumable item used in the electric arc furnace. As such, graphite electrodes would appear to satisfy the criterion of inputs as defined in the Modvat Rules, for purposes of manufacturing activity in electric arc furnaces. 3. As regards carbon electrodes used in the manufacture of aluminium, Modvat credit appears to have been denied on the ground that graphite electrodes are to be treated as "machines" since they fall under Chapter 85 and all goods under Chapters 84 or 85 should be treated as machines in view of Section XVI Note 5 which reads as under :- "For the purposes of these notes, the expression 'machine' means any machine, machinery, plant, equipment, apparatus or appliance cited in the heading of Chapter 84 or 85." 4. This contention does not appear to be correct. It is only for the purposes of Notes 1 to 4, Section XVI that the word 'machine' (used in Notes) refers to any machine, machinery, plant, equipment, apparatus or appliance mentioned in the heading of Chapter 84 or 85. Otherwise, the whole phrase "machine, machinery, plant, equipment, apparatus, etc." would have to be used wherever the word "machine" is used in the Notes. As carbon electrode is essential for manufacture of aluminium, it should be eligible for Modvat credit, as it would satisfy the criterion of input. 5. Similar considerations would hold for other electrodes also which are used in manufacturing processes. 6. As electrodes are to be treated as consumables in the above circumstances, it is not relevant whether such electrodes, in part or in full, form part of the finished products. 7. Hindi version of this letter will follow in due course. 8. Receipt of this letter may please be acknowledged.