Modvat credit on machine parts: exclusion for machinery does not automatically cover a part used in production.

Rule 57A of the Central Excise Rules, 1944 allowed Modvat credit for goods used in or in relation to manufacture, while the Explanation excluded only machines, machinery, plant, equipment, apparatus, tools and appliances used for producing or processing goods. That exclusion was held to cover complete machines or similar equipment, not every part used in machinery unless the part itself fell within the excluded categories. On that reasoning, a clay graphite stopper used as a machine part was treated as an input and not as an excluded item, and the question of law was held referable to the High Court.

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Issues: Whether clay graphite stopper, being a part used in a machine, is excluded from the definition of "input" under the Explanation to Rule 57A of the Central Excise Rules, 1944, and whether the question of law arising from the Tribunal's order should be referred to the High Court.

Analysis: Rule 57A allowed credit on goods used in or in relation to the manufacture of final products, while the Explanation excluded machines, machinery, plant, equipment, apparatus, tools and appliances used for producing or processing goods. The exclusion was held to cover complete machines and similar equipment, not every part used in a machine, unless the part itself answered that description. Applying the Larger Bench view in the earlier reference proceedings, clay graphite stopper, though used as part of a machine, was treated as an input and not as an excluded machine or appliance. As the Tribunal's view turned on that legal question, the matter raised a referable question of law.

Conclusion: The question of law was required to be referred to the High Court, and the assessee's entitlement to Modvat credit under Rule 57A was not negatived in this order.

Final Conclusion: The reference application succeeded and the matter was sent for determination by the High Court on the framed question.

Ratio Decidendi: The exclusion in the Explanation to Rule 57A of the Central Excise Rules, 1944 applies to complete machines and similar equipment, and does not automatically extend to parts used in such machinery unless the part itself falls within the excluded categories.

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