1993 (1) TMI 97 - HC - Central Excise

Inputs used to manufacture steel ingots qualify for MODVAT credit under Rule 57A; denial and demand set aside

HC held the contested materials (dolopatch mix, magnesite peas, ramming mass) are inputs 'in relation to' manufacture of steel ingots, not part of ... Modvat Credit - Classification of dolopatch mix, Magnesite Peas, and ramming mass as inputs for steel ingots - construction of Rule 57A of the Central Excise Rules, 1944 (the Rules) - allows for credit of duty paid on excisable goods used as inputs on the manufactured item - meaning of machines or machinery or instruments or appliances - HELD THAT:- No dispute that the items in question are inputs within the meaning of the explanation to Rule 57Abut according to the respondent authorities the items come within the excluded items. It is said that the items in question form part of the machinery because they are really used to protect the machinery and not for the manufacture of the ingot itself. There can be no dispute that the items are used in relation to the manufacture of steel igots. In fact the Tribunal in the case of Mukund Steel [1989 (12) TMI 189 - CEGAT, BOMBAY] said that it was not disputed that the items were required for the manufacture of steel. The answer to the first question posed above therefore is in the affirmative. Merely because chemicals are used for the machinery do not make the chemicals, machinery. It does not matter that the items are used in the Machinery or for the purpose of the Machinery. To repeat, the only relevant question is are they used in or in relation to the manufacture of ingots. It was sought to be argued that the items were 'appliances', meaning something that is applied. There is no warrant to give this strained meaning to the word. In common terms an appliance is a device. In technical terms an appliance has been defined as 'a piece of equipment that draws electric or other energy and produces a desired work-saving or other result such as an Electric Heater, a Radio or an Electronic Range'. It may be noted that as far as the Tariff Act of 1985 is concerned, Plant, Machinery, Machines, Equipment, Apparatus, Tools and Appliances are all classified under Headings and Sections which are totally different from the Headings and Section under which the items are classified. The Tribunal has erred in seeking to limit the meaning of the word 'inputs' to those items which go into the steel ingot completely overlooking the phrase 'in relation to' in the definition in the major clause of the explanation. There is no dispute that the petitioner No. 1 had in fact, used and uses the items in the manufacturing of ingots. The Supreme Court has also held that manufacture would include a process which was commercially expedient in the production of goods That the process in question is commercially expedient has not been doubted. For the reasons aforesaid the impugned order of the Assistant Collector cannot be sustained, and is accordingly quashed. The bank guarantee furnished by the petitioner in respect of the demand made under the impugned order is discharged. Issues Involved:1. Interpretation of Rule 57A of the Central Excise Rules, 1944.2. Classification of dolopatch mix, Magnesite Peas, and ramming mass as inputs for steel ingots.3. Preliminary objection regarding the alternative remedy under the Central Excises and Salt Act, 1944.4. Merits of the case concerning the classification of the items as inputs or excluded items.Summary:Issue 1: Interpretation of Rule 57A of the Central Excise Rules, 1944The primary issue in this writ petition is the construction of Rule 57A, which allows for credit of duty paid on excisable goods used as inputs in the manufacture of final products. The explanation to Rule 57A defines 'inputs' and lists exceptions, such as machines, machinery, plant, equipment, apparatus, tools, or appliances used for producing or processing goods.Issue 2: Classification of Dolopatch Mix, Magnesite Peas, and Ramming MassThe petitioner argued that dolopatch mix, Magnesite Peas, and ramming mass are inputs for steel ingots. These items are used in the furnace to prevent leakage and reduce erosion, losing their identity and being consumed in the process. The Assistant Collector initially denied modvat credit, but the Collector of Central Excise later allowed it. However, subsequent orders again disallowed the credit, leading to this writ petition.Issue 3: Preliminary Objection Regarding Alternative RemedyThe respondents contended that the writ petition should not be entertained due to the availability of an alternative remedy under the Central Excises and Salt Act, 1944. The court rejected this objection, citing reasons such as the prolonged pendency of the writ application, the predetermined outcome by the Tribunal, and the lack of disputed facts. The court emphasized its duty to resolve the issue to prevent arbitrary assessments.Issue 4: Merits of the CaseThe court examined whether the items in question are inputs within the meaning of Rule 57A. The Tribunal had previously ruled that these items were part of the machinery and thus excluded from the definition of inputs. However, the court disagreed, stating that the items are chemicals and do not fall within the dictionary meaning of machines, machinery, or appliances. The court held that the items are used in relation to the manufacture of steel ingots and are therefore inputs. The argument that steel ingots could be manufactured without these items was deemed immaterial, as the definition of inputs depends on what is actually used.ConclusionThe court quashed the impugned order of the Assistant Collector, discharged the bank guarantee furnished by the petitioner, and allowed the petitioner to claim a refund under Section 11B of the Act. The application for a refund must be disposed of within eight weeks from the date of communication of the order.