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TMI Blog1991 (10) TMI 139X X X X Extracts X X X X X X X X Extracts X X X X ..... egistered as E-395/90, aggrieved with that part of the order denying them modvat benefit in respect of wire netting of stainless steel and of phosphor bronze. 2. Both the Appeals were heard together by us and are disposed of by this common order. 3. The department s appeal was taken up first when Shri A. Choudhury, learned Departmental Representative argued their case. He referred to the contentions raised in the appeal and emphasised the point that the chemicals and resins in question which had been allowed modvat benefit by the Collector (Appeals) cannot be said to be used in the manufacture of paper. They are used in an earlier process of water treatment for purifying it and removing soluble salts to prevent choking and formation of scales in the boiler and pipes. This is not a process for the manufacture of paper. Even if untreated water is boiled, steam is produced and water treatment for this purpose is not a process in the manufacture of paper. Hence, such chemicals/resins used for treating water and not in the manufacture of paper are not entitled to get modvat credit as inputs under Rule 57A of the Central Excise Rules. As regards the item Felt, it is in the nature of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eligibility for modvat benefit is used in or in relation to the manufacture of final products. The expression in relation to has been employed to extend the range of products used as compared to the language of similar previous provisions, e.g. Notification 201/79 where the eligible inputs were those used in the manufacture of final products as raw materials or component parts. The expression in relation to has been the subject matter of judicial interpretation by the Supreme Court in Doypack Systems Pvt. Ltd. v. Union of India reported in JT 1988 (1) SC 304 = 1988 (36) E.L.T. 201 (SC). It had been observed there that the expression in relation to is a very broad expression. These words of comprehensiveness have a direct significance as well as an indirect significance depending on the context. The expression relating to is equivalent to or synonymous with concerning with and pertaining to . It is an expression of expansion and not of contraction. The learned Counsel urged that the words in relation to used in Rule 57A would thus cover a wide range of inputs. The crucial test will be whether the goods in question are used in or in relation to the manufacture of the fin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ufacture of paper. It is commercially inexpedient to produce paper without steam. If steam were chargeable to duty then the duly paid on it would qualify for modvat benefit as it is used in the manufacture of paper. Then the chemicals used for treating water for the manufacture of steam would have qualified for the same benefit while determining the duty on steam. Because steam is exempt, it cannot have the effect of denying the benefit of modvat credit in respect of such chemicals while determining the duty on the final product paper. Notification 217/86 and Rule 57D would support his contention, he added. He then referred to the decision of the Supreme Court in the following cases :- (1) Collector of Central Excise v. Ballarpur Industries Ltd. -1989 (43) E.L.T. 804 (2) Collector of Central Excise v. East End Paper Industries Ltd. - 1989 (43) E.L.T. 201 (SC) (3) Member, Board of Revenue, West Bengal v. Phelps Co. (P) Ltd. - Sales Tax Cases Vol. XXIX 1972,103 These cases decided by the Supreme Court were concerned with the scope of the expression used in the manufacture of. The first two related to Central Excise duty in terms of exemption Notification 201/79 while the t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f a kind used in paper making fall under Heading 59.09. This Chapter unlike other Chapters dealing with Textiles was included in the modvat scheme. If the felts are treated as machine, machinery etc. notwithstanding Chapter Note 1(b) under Chapter 59 and Section Note 1(e) of Section XI and denied modvat benefit, then the purpose of including Chapter 59 including Heading59.09 in the modvat notification would be defeated and would make it nugatory and redundant. Such an interpretation is not permissible. The item felt is manufactured by manufacturers who do not make paper making machinery. The latter manufacture the machines without the felt which is procured by the paper manufacturers from the felt manufacturers every now and then, according to their requirement. Though felt is used in the paper machine, it is not a built-in component part of that machine, the same way that drill bits are not parts of drilling machine. It is a consumable item requiring to be replaced every now and then when it gets worn out. Whether it is a consumable item or capital item is decided by the criterion how it is treated for Income Tax purposes for claiming depreciation. Depreciation is admissible only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ribunal - WRB). Same decision had been taken by other Benches also. 8. In view of these submissions, Learned Counsel strongly pleaded that the decision of the Collector (Appeals) insofar as allowing modvat benefit for chemicals and resins used for water treatment and felt used for the manufacture of paper may be upheld and the department s appeal dismissed. 9. Shri Lakshmikumaran then took up their appeal adding that his arguments in respect of felt would equally apply to wire netting of stainless steel and phosphor bronze used by them in the manufacture of paper. The Collector (Appeals) has allowed the benefit to them for felt but the wires are put to similar use in the process of manufacture of paper but they have been denied the benefit. No reasoning has been given by him for coming to a different conclusion. He has only stated that these cannot be regarded as inputs used in or in relation to the manufacture of paper, adding that wire netting are parts of machinery and do not qualify for being considered as input for availing the facility of modvat credit. As already argued by him, with reference to felts, the wire netting are not parts of the printing machine and cannot be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot get used up but are used repeatedly for a number of operations, they are also used like items of machinery and the restricted meaning attributed to machinery as signifying working or moving parts of a machine would be in accord with the purpose of modvat scheme. As the goods satisfy the definition of machinery and are machinery themselves, they stand excluded from modvat benefit. Even otherwise and in the alternative they would be equipment which is also excluded from modvat. Thus all the three items, felt, wire netting of stainless steel and phosphor bronze would not be eligible for modvat benefit and the order of the Collector (Appeals) holding modvat credit to be admissible for felt requires to be set aside. It should, however, be confirmed in so far as the finding on the wire netting is concerned. 11. As far as the chemicals and resins used for water treatment are concerned, they are not used for the manufacture of paper but to safeguard the maintenance of boiler. As boilers are themselves not eligible for modvat benefit being in the excluded category, the chemicals and resins used in relation to the boilers and not in the process of manufacture of paper also cannot get th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taken by a Single Member which can be departed from by us if we find that the matter, in the light of relevant and additional facts, needs to be reconsidered. 15. A forceful plea was advanced by the learned Counsel, Shri Lakshmikumaran that the terms, machine, machinery etc. not being defined in the relevant Rule viz. 57A of the Central Excise Rules, 1944, the criterion as to what such items are, in terms of the Central Excise Tariff should come into play. Felt falls under sub-heading 5909.00 by specific mention in Chapter Note 6(b) under Chapter 59. We also find that Section Note 1(e) under Section XVI of the Central Excise Tariff which deals with machinery and mechanical appliances specifically keeps articles of Textile material for technical use falling under Heading 59.09 out of the scope of the machinery Chapter. Thus by both specific mention under Heading 59.09 and specific exclusion from machinery chapter, the classification of felt has been determined. We do not agree with the view expressed by Shri Biswas, learned SDR, that the Chapter and Section Notes relate only to Tariff classification and are not applicable to Rule 57A for deciding eligibility for modvat benefit. We ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xist: (i) a complete and integrated collection of several objects or articles; (ii) these objects or articles should interact in unison upon or with each other. 18. We feel this decision would apply to the present case as to the scope of the term machinery. Shri Lakshmikumaran referred to the decision of the Supreme Court Jaid in Annapoorna Carbon s case (referred to supra). We find on a perusal of the decision that this does not advance his case that felt and wire netting for paper making machinery are not parts of such machines. Supreme Court did not hold that Carbons are not parts of a cinema projector. Moreover, the relevant entry with which they were concerned covered parts also. However, this does not affect the present question either way. This has to be decided in the light of other relevant pronouncements. We have already referred to the Gujarat High Court decision in the Ambica Wood Works case. We also have certain other judgments for the proposition that any article used in a machine to make it functional is not necessarily a part of that machine. Thus, typewriter ribbon used in a typewriter was held to be not an essential part of typewriter to attract the tax unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he department that as equipments are excluded, parts of equipment should also be taken to be excluded has no legal basis and that there is no warrant to read the parts into the description of excluded category of goods. We share this latter view. However, in the Andhra Pradesh Paper Mills case, the South Regional Bench had, after making the observations referred to above held that wire netting and felts are essentially parts of the paper making machinery and their main use is to keep the machinery functional and that they must be said to have been used in relation to the machines themselves and not in the manufacture of the goods. This is an important aspect of the matter which puts into the background the other question whether the exclusion of machines would extend to the exclusion of parts thereof for the purpose of granting modvat benefit. If the said goods are used in relation to the machines and not used in the manufacture of the final products, there is no question of modvat being admissible. In a number of decisions of different Benches of the Tribunal including ours, it has been decided that for goods used in relation to the machines or for their repair or maintenance modv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... do not get excluded from modvat benefit because only machines, machinery are. Further, in the department s appeal as well as in the Order-in-Appeal and Order-in-Original of the Assistant Collector, the stand taken is that they are parts of the machine and that they are not used in or in relation to the manufacture of paper. In fact, the finding appears to be that they cannot be said to be used in the manufacture of paper because they are only parts of the machines. This is not the same as stating that their use is only in relation to the machine and not in relation to the manufacture which was the line taken by the Tribunal in the above mentioned case. However, giving the benefit of such an approach on the part of the department we have given our decision from this angle also. What has been agitated before us and what has been decided in the proceedings below are recapitulated below. 20. The ground advanced in the appeal of the Collector in respect of felt is only that it is in the nature of equipment or machinery and that it does not go directly in the manufacture of the final product. The Order-in-Appeal insofar as wire nettings are concerned contained the finding that they ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dit of duty. The production of steam is a connected or integrated process in the manufacture of paper. Without steam, paper cannot be dried and manufactured and with untreated water the manufacture of paper would be commercially inexpedient, though theoretically possible. In such event also as settled by the Supreme Court, the goods used in such connected process also would qualify to be treated as goods used in the manufacture. 22. We had occasion to deal with the issue of chemicals used for treatment of water which is boiled to produce steam in Indian Explosives Ltd. v. Collector of Central Excise, reported in 1990 (50) E.L.T. 117. We extract the relevant paragraph dealing with this question from the said order : Shri Biswas, learned SDR raised a point that the purification of water for the purpose of production of steam is being carried out by the appellants mainly with a view to protect the boilers from being corroded by untreated water and this is not an essential process for manufacture of explosives as even without such treatment, water can be boiled and steam produced. We are not inclined to agree with this submission, since we find that in Fertiliser Corporation of In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of manufacture, the definition of manufacture which takes within it all ancillary and incidental processes should secure to render the department s stand insubstantial . The Court observed that they found no substance in the contention of the department s counsel that the process in which the chemical was used was anterior to and at one stage removed from the actual manufacture of paper. They upheld the contention of the respondents counsel, referred to above. It was observed that without it (viz. the chemical used in the anterior process) the presence of the end-product, as such, is rendered impossible and that this quality should coalesce with the requirement that its utilization is in the manufacturing process as distinct from the manufacturing apparatus. The use of chemicals/resins for water treatment fully conforms to the above-mentioned criteria laid down by the Supreme Court. 25. For the foregoing reasons, we find that the order of Collector (Appeals) in so far as allowing modvat credit on chemicals/resins for treatment of water and on felts is correct in law and deserves to be upheld. We, therefore, dismiss the department s appeal. For the same reason, the appeal file ..... X X X X Extracts X X X X X X X X Extracts X X X X
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