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TMI Blog1995 (2) TMI 256X X X X Extracts X X X X X X X X Extracts X X X X ..... les, 1944. On the other hand the respondents contend that the items are consumable inputs used in the manufacture of steel; they are used to line the electric arc furnace and serve the same purpose as ramming mass. In fact, Fire Bricks are nothing but a solidified form of ramming mass and applying the ratio of the Hon ble Calcutta High Court in the case of Singh Alloys Steel Ltd. v. Assistant Collector of Central Excise, reported in 1993 (66) E.L.T. 594 (Cal.), extending Modvat to ramming mass (which judgment has been followed by the Larger Bench of this Tribunal in the case of A.B. Tools Ltd. and Punjab Iron Steel Company Pvt. Ltd. [Order No. A/229 and 230/94-NRB, dated 23-2-1994 - reported in 1994 (71) E.L.T. 776 (Tri.)] the two items in dispute in this appeal should also be held eligible for benefit of Modvat credit. 2. We have heard Shri V.C. Bhartiya, learned DR and Dr. A.M. Singhvi learned Senior Advocate along with Shri C. Mukhopadhyay, learned Advocate, carefully considered their submissions and perused the technical literature on record. At the outset, the learned DR concedes that the ratio of the Calcutta High Court judgment in the case of Singh Alloys (supra) where ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nclude abrasion, impact, thermal shock, chemical attack, and high level loads at high temperature. The electric arc furnace for steelmaking as also the ladles etc. are lined with different types and qualities of refractories so as to carry on the process of steelmaking and obtain reasonable and economic campaign life. However, in the process of steelmaking, refractories are always subjected to destructive forces and are worn out generally gradually but sometime quite abruptly. The lining is done when the refractories are worn out to such an extent that the structure becomes weak and unstable. This happens quite frequently and regular relining of the steelmaking and refining units including the ladles, tundishos is a necessary process, as in the case of graphite electrodes. Regular maintenance of refractory structures e.g. side walls, bottom etc. of the electric arc furnace by gunning refractory, fettling of the bottom is a necessary step for prolonging the campaign life of refractories. Gunning and felting are replaced after a few heats or even after each heat in electric arc furnace steelmaking, refractories, therefore, constitute a major consumable stores item in steelmaking ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s castables, plastics, ramming mixes, gunning mixes and mortars. They usually are supplied in a bag, box, drum or other package and are ..... Their use in most plants is growing at a faster rate than refractory bricks use. Today it is possible to obtain a denser quality bottom installation with brick and then by ramming. Because of the delay, extra effort and meticulous care in ramming, drying and burning in for the rammed bottom there is a trend to all ____ bottom installation (Reference page 65 of Electric Furnace Steel Making - A publication of the Iron and Steel Society). 3.4 The consumable nature of refractories in Iron and Steel industry is brought out by technical literature such as Write up on Electric Arc Furnace Refractories by Bruce H. Baker Armco Inc. and Michael P. Fedock, (paper book No. 2 page 16) according to which the Indian Iron and Steel Industry consumes about 70% of the total refractories produced in India. Vol. 18-4 of SCATSI October 1989 refers to refractories as raw materials along with electrodes, natural gas, oil etc. for electric arc furnace. 3A. From the above, the following factors in respect of refractories in electric arc furnace emerge : (i) Fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from amount a hundred weight (about 50 kg) to a hundred or more tones. They are brought along on overhead cranes. The smallest can be tipped over to pour their contents into whatever receptacle is waiting, but the common practice is to have a stopper in the bottom, and this can be removed by hinged and levered device to allow metal to flow out of the bottom. If the steel is further to be refined the ladle may go directly to a refining unit for stream or ladle degassing. Otherwise the molten metal is transferred (poured or teemed) to moulds in which it solidifies to make ingots, which can also range from a few hundred weights to many tons in weight. The steel ingot is the crude material for further treatment . The refractory bricks cannot, therefore, be considered as component parts of industrial furnaces. The decision in the case Alembic Glass Industries Ltd. v. Collector of Customs reported in 1993 (67) E.L.T. 542 relied upon by the DR is distinguishable as in that case the benefit of Notification 242/76-Cus., dated 2-8-1976 was extended to refractory bricks as they were imported for replacement of the regenerator which had become an integral part of the glass furnace by virtue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... materials. The items dissolve and seal the crevices in the refractory walls of the furnace to prevent leaking of the liquid metal from the furnace and to reduce the erosion of the refractory lining of the furnace. The items lose their identity and are consumed in the process. Some part of the items remains in the liquid metal which forms the ingot and the balance forms part of the residue or slug. 8. Considering the characteristics of ramming mass, which is a chemical and classified as such, the Hon ble Court observed that such an item could not be considered to fall under any of the excluded category in the explanation to Rule 57A. 8.2 While referring to Tribunal s orders in the case of Mukund Iron and Steel Works Ltd. v. Collector of Central Excise - 1990 (45) E.L.T. 84, the Hon ble Court did not specifically set aside the findings in that order in regard to refractory bricks but only pointed out to the wrong approach adopted by the Tribunal in considering the matter of eligibility of Modvat of such items. The Hon ble Court held that the proper approach was to first determine whether or not the item in question is input in relation to the final product and, if the answer is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve coverings which become integral part of the furnace and it is not something external to it. In view of this it cannot be held that such bricks are not parts of furnace. 11. Ld. Advocate also submits that these bricks are too frequently replaced as they get worn out and constitute sizable expenditure. The machinery through constant use does get worn out and even parts are to be replaced; that by itself does not mean that what is replaced is not a part of machinery as such. Even if such bricks are used for maintenance of equipment, they would not be eligible to Modvat. It was held by the Tribunal in the case of Assistant Collector v. Evangelist Francies Almeida reported in 1991 (51) E.L.T. 295 that goods required for maintenance of structures equipment and machinery are not eligible input as they are used in the maintenance and repair of machinery. In case of Alembic Glass Industries Ltd. v. Collector of Customs reported in 1993 (67) E.L.T. 542 which held bricks as part of furnace, what is relevant consideration is whether refractory bricks constitute parts of furnace or furnace can function for the purpose for which it is worked out without such bricks. It is obvious that no fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of final products but these are so used only as parts of furnace. If the furnace itself is an excluded input, a part of such furnace, without which furnace cannot function, cannot be considered as not excluded. 13. In view of this, I propose to allow the appeal of the Revenue and set aside the impugned order of Collector (Appeals) in so far as fire-bricks are concerned. Sd/- (Shiben K. Dhar) Member (T) 14. In view of the difference between the two Members, the following point of difference is placed before the Hon ble President for reference to third Member : Whether fire bricks are eligible for the benefit of the Modvat credit as held by Member (J) or form part of the furnace and hence excluded from Modvat coverage in terms of the explanation to Rule 57A of the Central Excise Rules, 1944. as held by Member (T) . Dated : 12-8-1994 Sd/- (Shiben K. Dhar) Member (T) Sd/- (Jyoti Balasundaram) Member (J) POINT OF DIFFERENCE 15. [Order per : Lajja Ram, Member (T)]. - The point of difference referred to me is whether fire bricks are eligible for the benefit of the Modvat credit, as held by Member (Judicial), or form par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ustoms - 1989 (42) E.L.T. 89 (Tribunal) 19. In rejoinder Shri J.P. Singh, the Ld. JDR stated that the replacement of the fire bricks was not crucial, and mentioned that Air filter was also replaceable but was not an admissible input. He submitted that the product before the Hon ble Calcutta High Court was the ramming mass which was in the nature of a chemical, while the goods under consideration in the present case are fire bricks, and that the decision of the Calcutta High Court in the case of Singh Alloys and Steel Ltd. (supra), is distinguishable. 20. I have very carefully considered the matter. M/s. Raipur Alloys and Steel Ltd., Raipur, were manufacturers of iron and steel, and articles of iron and steel, falling under Chapter 72 and Chapter 73 respectively of the Schedule to the Central Excise Tariff Act, 1985 (hereinafter referred to as the `Tariff ). They had two electric arc furnaces of 11/12 Mt. capacity each. As per Rule 57A read with Rule 57G of the Rules, they declared, among other, fire bricks as input for the manufacture of their final products - iron and steel. According to them their indirect inputs which included fire bricks, (furnace lining bricks, roof bricks ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , tools or appliances used for producing or processing of any goods or for bringing about any change in any substance in or in relation to the manufacture of the final products. 23. The principles of modern steel making in an over-simpl ified manner may be stated as under : Iron-bearing materials containing principally iron oxides (iron ore, pellets, sinter, etc.) are reduced to molten iron (pig iron) in the blast furnace, using the carbon of coke as the reducing agent. In the process, the iron absorbs from 3.0 to 4.5 per cent of carbon. Iron containing 3.0 to 4.0 per cent of carbon can be used to make iron castings (cast iron) ............... most modern steel contains considerably less than 1.0 per cent of carbon, and the excess carbon must be removed from the product of the blast furnace to convert it into steel. The excess carbon is removed by controlled oxidation of mixtures of molten pig iron and melted iron and steel scrap in steelmaking furnaces to produce carbon steels of the desired carbon content. In this country, the principal steelmaking furnaces include the open-hearth furnace, basic-oxygen furnace and electric-arc furnace. Various elements - chromium, manganese ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arc furnace consists of a shallow steel cylinder lined with fire bricks. There are direct arc furnaces, indirect arc furnaces, induction furnaces, electric reduction furnaces, and there are electric furnaces of special designs also. The structural and mechanical parts of a modern electric arc furnace consists basically of a refractory lined shell and roof to contain the charge, and mechanisms to position the electrodes to maintain the arc for melting and refining, to tilt the furnace to tap and desilag, to remove the roof for top charging and to operate the doors of the shell. 25. Fire bricks are a variety or refractory (substance that is hard to melt) which is a non-metallic material or object that can withstand high temperatures without becoming soft. Refractories are used to line furnaces for melting metals and glass, in crucibles for inducing chemical reactions and for melting materials, as insulation in the walls of furnaces and kilns, and in other places where resistance to temperature and corrosion is required. A common refractory called fire bricks contains aluminium silicates and minor amounts of titanium and iron oxides. Other refractory substances include alumina magn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upon bauxite (sometimes mixed with clays), kyanite, sillimanite or andalusite (aluminium silicates) mixed with clays, or sintered alumina. (2) Alumino-silicate refractories (e.g. based upon fire-clay with some chamottex or grog). (3) Silica refractories (based upon sand, crushed quartz, flint, etc., and bonded with clay or lime). (4) Magnesite refractories (based upon magnesite, giobertite, or dolomite); refractories based upon chromite or chromium oxide; chrome-magnesite refractories. (5) Refractories based upon silicon carbide. (6) Zirconium oxide or zirconium silicate refractories usually agglomerated with clay: refractories based upon beryllium oxide, thorium oxide, cerium oxide, etc. (7) Refractories based upon graphite or retort carbon usually agglomerated with pitch, tar or clay. Refractory materials are used mainly in the construction of blast furnaces, coke ovens, petroleum cracking plant, glass and ceramic furnaces, and in the manufacture of pots, crucibles and other plant for the chemical and glass industries, etc. (Source : Sub-Chapter notes under Chapter 69 - Page 902 of the Customs Co-operation Council Nomenclature - Explanatory Notes) In the Custo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion. These qualities are to make them suitable for the particular manufacturing apparatus/equipment. At the present stage of our technology furnace is not usable without the fire bricks. Once fire bricks are used for the furnace to make the furnace usable, they are put in the use of the furnace, in the sense minuted by the Hon ble Supreme Court in the case of Tata Engineering and Locomotive Company Ltd. v. State of Bihar - 1994 (74) E.L.T. 193 (S.C.). In that case the Hon ble Supreme Court had observed that the ordinary common sense understanding of the word `raw-material is that it is something from which another new or distinct commodity can be produced. They have added that when it is used in a taxing statute it may have related meaning depending on the context in which it has been used. The main emphasis of the Hon ble Supreme Court is on the use of the raw material in the manufacture of goods. In the case before them, they held that the concessional rate of tax was applicable to that raw material that is put in the manufacture or use of the goods. In the present case, it cannot be said that the fire bricks are put in the manufacture of iron and steel. In fact they are put in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the word `includes is an inclusive definition and expands the meaning. In the case of Mahalakshmi Oil Mills v. State of Andhra Pradesh - 1988 (38) E.L.T. 714 (S.C.) in para 11 the Hon ble Supreme Court had observed as under :- * * * * * * * * * * As with inclusions so with the exclusions, the terms apparatus, equipment, plant etc. had to be given a wider meaning. In the case of Krishi Utpadan Mandi Samiti v. Shanker Industries - 1993 AIR SCW 762, the Supreme Court in para 9 of the judgment had observed as under :- where the legislature uses the words `means and `includes , such definition is to be given a wider meaning and is not exhaustive or restricted to the items contained or included in such definition. 30. Fire bricks are not consumables. Consumable is one that can be consumed, that is used up, wasted away. The manufacturer of the iron and steel does not consume the fire bricks to convert them into iron and steel or to bring into existence different goods (refer Supreme Court decision in the cases of Ganesh Trading Company v. State of Haryana - AIR 1974 SC 1362, and Babu Ram Jagdish Kumar and Co. v. State of Punjab - AIR 1979 SC 1475. They are not raw material ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... awdust, coal dust etc.) (refer CCCN Explanatory Notes sub-chapter 1 of Chapter 69). The fire bricks and their constituent materials are commercially known differently. They are not just a form of their constituent materials. They cannot be converted back to their constituent materials as was the case of Sugar and Patasas etc. in the case of State of Gujarat v. Sakarwala Brothers - 1967 (19) STC 24). They could not be put to the same use as their constituent materials, or vice versa. In this case there is no relevancy of the goods called ramming mass. In the publication of US Steel, there is a reference to Ramming mass as under :- Special granular refractories are used principally for the basic ramming and patching materials which have been introduced since 1939. These are carefully-sized, chemically-bonded preparations composed of dead-burned magnesites or magnesia-dolomite mixtures. The latter generally contain a minimum of 60 per cemt MgO, the balance being so proportioned between lime and silica as to form a predominance of dicalcium silicate when clinkered in a rotary kiln. To prevent the dusting (spontaneous transformation to a powder) of dicalcium silicate cooling, it is n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he process. In this case there is no concern with the chemicals but with a specific identifiable and separately classifiable goods obtained by the firing after shaping of specific materials and mixed with binders. Thus the argument of the respondents that the product called ramming mass, and the goods fire bricks should be given the same treatment, has no force. I agree with the Ld. Member (Technical) that it cannot be held that ratio of Hon ble Court s order in case of Singh Alloys and Steel Ltd. (supra) covers the case of refractory brick also. 32. In the case of Andhra Pradesh Paper Mills Ltd. v. CCE - 1990 (50) E.L.T. 252 (Tribunal), the Tribunal had held as under :- The machineries, equipment and apparatus by themselves have been precluded from the benefit of the MODVAT credit. Cascading effect of the duty paid on the machinery used in or in relation to the manufacture of the finished goods is not to be mitigated and as a corollory thereto the parts which are used in these machineries to make them functional also are not entitled to the benefit of the MODVAT scheme. These parts which are used as replacement from time to time have to be held to have been used in relation ..... X X X X Extracts X X X X X X X X Extracts X X X X
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