2000 (5) TMI 64 - AT - Central Excise

Lubricating oils and greases for paper manufacture qualify as inputs under Rule 57A, eligible for Modvat credit pre-1-3-1997

CEGAT, NEW DELHI - AT held that lubricating oils and greases used to lubricate machinery in the manufacture of paper products qualify as inputs under Rule ... Modvat - Duty paying documents - Whether Modvat credit was admissible on lubricating oils and greases under Rule 57A of the Central Excise Rules during the period prior to 1-3-1997 - HELD THAT:- Unless the machinery of the assessees are lubricated with the lubricants, heat will be generated on account of mechanical friction between the working surfaces of the machinery leading to adverse consequences affecting the process of manufacture as rightly submitted by Ld. Consultant. The friction and the resultant heat are also sure to cause damage to the machinery. These facts would suffice to hold that lubrication of the machines and machinery is essential for their working and, for that matter, for the smooth process of manufacture of final products. Ld. DR's plea that the lubricants are used only for better operation of the machines is not tenable. Again, it does not matter whether the goods are used in the machinery or for the purpose of the machinery. Lubrication of the machinery is an activity which is concerned with or pertaining to the manufacture of the finished goods. It is rather integrally connected with the manufacture. The use of lubricants in the machinery is certainly in or in relation to the manufacture of the finished products. It follows from the foregoing discussion that the question whether lubricants used for lubrication of machinery employed for the manufacture of finished products are 'inputs' within the meaning of this term under Rule 57A requires to be answered in the affirmative by squarely following the ratio of the decision of this Tribunal in Union Carbide India Ltd.[1996 (6) TMI 308 - CEGAT, NEW DELHI-LB]. Accordingly, we hold that the lubricants in question were used in or in relation to the manufacture of paper products and the same qualified to be 'inputs' for the purpose of Modvat credit under Rule 57A during the relevant period. Unless the machinery of the assessees are lubricated with the lubricants, heat will be generated on account of mechanical friction between the working surfaces of the machinery leading to adverse consequences affecting the process of manufacture as rightly submitted by Ld. Consultant. The friction and the resultant heat are also sure to cause damage to the machinery. These facts would suffice to hold that lubrication of the machines and machinery is essential for their working and, for that matter, for the smooth process of manufacture of final products. Ld. DR's plea that the lubricants are used only for better operation of the machines is not tenable. Again, it does not matter whether the goods are used in the machinery or for the purpose of the machinery. Lubrication of the machinery is an activity which is concerned with or pertaining to the manufacture of the finished goods. It is rather integrally connected with the manufacture. The use of lubricants in the machinery is certainly in or in relation to the manufacture of the finished products. Accordingly, we hold that the lubricants in question were used in or in relation to the manufacture of paper products and the same qualified to be 'inputs' for the purpose of Modvat credit under Rule 57A during the relevant period. Issues Involved:1. Admissibility of Modvat credit on lubricating oils and greases u/r 57A of the Central Excise Rules prior to 1-3-1997.2. Whether lubricants used for lubrication of machinery qualify as 'inputs' u/r 57A.3. Validity of Modvat credit taken on the strength of the original copy of the invoice without satisfying the jurisdictional Assistant Commissioner about the loss of the duplicate copy.4. Admissibility of Modvat credit on lubricants declared as capital goods u/r 57Q instead of as inputs u/r 57A.Summary:1. Admissibility of Modvat credit on lubricating oils and greases u/r 57A of the Central Excise Rules prior to 1-3-1997:The Tribunal examined whether Modvat credit was admissible on lubricating oils and greases u/r 57A during the period prior to 1-3-1997. The periods of dispute in the appeals ranged from July 1995 to March 1997. The Tribunal noted conflicting decisions on this issue, necessitating a reference to a larger bench.2. Whether lubricants used for lubrication of machinery qualify as 'inputs' u/r 57A:The Tribunal considered the definition of 'input' u/r 57A, which includes goods used in or in relation to the manufacture of final products, whether directly or indirectly. The Tribunal held that lubricating oils and greases used for lubricating machinery essential for the manufacturing process qualify as 'inputs'. This conclusion was supported by previous decisions in Pragati Paper Mills, Sipta Coated Steel Ltd., and Black Diamond Beverages Ltd., and was consistent with the Supreme Court's interpretation in J.K. Cotton Spg. & Wvg. Mills Co. Ltd. and Indian Farmers Fertiliser Coop. Ltd.3. Validity of Modvat credit taken on the strength of the original copy of the invoice without satisfying the jurisdictional Assistant Commissioner about the loss of the duplicate copy:In appeal No. E/1579/97, the Tribunal found that Modvat credit taken on the original copy of the invoice without satisfying the jurisdictional Assistant Commissioner about the loss of the duplicate copy was not admissible. This decision was based on the precedent set by the Tribunal's Larger Bench in C.C.E., New Delhi v. Avis Electronics Pvt. Ltd.4. Admissibility of Modvat credit on lubricants declared as capital goods u/r 57Q instead of as inputs u/r 57A:In appeal No. E/1814/97-NB, the Tribunal addressed whether Modvat credit on lubricants could be allowed when declared as capital goods u/r 57Q instead of as inputs u/r 57A. The Tribunal followed the decision in Devyani Beverages Ltd. v. CCE, Meerut, holding that the declaration filed in terms of Rule 57Q was sufficient for extending credit on inputs within the meaning of Rule 57A.Conclusion:The Tribunal held that lubricants used for lubrication of machinery employed for the manufacture of finished products are 'inputs' u/r 57A and are eligible for Modvat credit. The appeals filed by the Department were rejected, and the appeal challenging the denial of Modvat credit based on the declaration under Rule 57Q was allowed.