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 ... Definition of inputs - modvat credit - 'in relation to' phrase - excluded items - plant, machinery, apparatus, tools or appliances - ejusdem generis - alternative remedy - writ jurisdiction - recurring controversyAlternative remedy - writ jurisdiction - recurring controversy - Whether the writ petition is maintainable notwithstanding an alternative remedy under the Central Excises and Salt Act, 1944. - HELD THAT: - The Court rejected the preliminary objection to entertainment of the writ petition. The petition had been pending for two years and was finally heard on affidavits; the Tribunal's prior decisions had effectively predetermined the outcome making an appeal under the Act an ineffectual remedy; there was no disputed question of fact but one of interpretation; and the controversy was of a recurring nature such that reliance on the alternative statutory remedy would be inappropriate. In these circumstances it would be inequitable and futile to require exhaustion of the alternative remedy before entertaining the writ. [Paras 11, 12, 13]Preliminary objection overruled and the writ petition held maintainable.Definition of inputs - modvat credit - 'in relation to' phrase - Whether dolopatch mix, Magnesite peas and ramming mass are 'inputs' within the meaning of the explanation to Rule 57A and thus eligible for modvat credit when used in the manufacture of steel ingots. - HELD THAT: - The explanation to Rule 57A gives a wide inclusive definition of 'inputs', covering items manufactured and used within the factory or used in relation to the manufacture of final products. The three chemical items in question are classified as chemicals in the Tariff Act and are in fact used in the manufacture of ingots: they are charged into the furnace, lose their identity, are consumed in the process, and some portion becomes part of the ingot or residue. The Court held that because the items are used in relation to manufacture and are actually used in the production process (a commercially expedient process), they fall within the inclusive definition of 'inputs' and are therefore eligible for modvat credit. [Paras 7, 14, 17, 23]The items are inputs within the meaning of Rule 57A and eligible for modvat credit.Excluded items - plant, machinery, apparatus, tools or appliances - ejusdem generis - Whether the said items are excluded from 'inputs' because they amount to plant, machinery, apparatus, tools or appliances used for producing or processing goods. - HELD THAT: - The Court negatived the contention that the chemicals constituted machinery or appliances. The Tribunal's approach of treating the materials as part of the furnace or as structural/maintenance material was rejected. The items are chemicals classified under different headings in the Tariff Act and do not satisfy ordinary or technical meanings of machine, apparatus or appliance. The Court further held that, if there were any ambiguity, the term 'appliances' must be read ejusdem generis with the preceding specific terms (plant, machinery, apparatus, tools), which would not encompass consumable chemicals. Accordingly the excluded categories do not apply to these items. [Paras 18, 19, 20, 21, 22]The items do not fall within the excluded categories of plant, machinery, apparatus, tools or appliances and are not excluded from the definition of 'inputs'.Final Conclusion: The impugned order disallowing modvat credit in respect of dolopatch mix, Magnesite peas and ramming mass is quashed; the bank guarantee is discharged; the petitioners' remedy for refund under Section 11B remains available and any such application shall be disposed of within eight weeks. 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.