Modvat credit for consumable polishing inputs upheld; fresh departmental ground beyond the show cause notice was rejected.

A departmental ground cannot be introduced for the first time in appeal where it was not part of the show cause notice, and the assessee succeeded on that point. Silicon carbide grains used for rough polishing of needle rollers were treated as consumable inputs used in relation to manufacture, not as disqualifying tools or excluded items under Rule 57A, so they remained eligible for Modvat credit. The assessee's entitlement to credit was therefore upheld, and the departmental objection failed.

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Issues: (i) whether the Department could sustain a fresh ground in appeal beyond the scope of the show cause notice, and (ii) whether silicon carbide grains used for rough polishing of needle rollers were ineligible for Modvat credit under Rule 57A of the Central Excise Rules.

Issue (i): whether the Department could sustain a fresh ground in appeal beyond the scope of the show cause notice

Analysis: A ground not forming part of the show cause notice cannot be introduced for the first time in departmental appeal, particularly where the original adjudication had accepted the assessee's position on that aspect and the appellate authority proceeded on a different basis. The objection raised by the assessee to the new departmental ground was also not effectively met.

Conclusion: The Department could not validly sustain the fresh appellate ground beyond the show cause notice, and this issue was decided in favour of the assessee.

Issue (ii): whether silicon carbide grains used for rough polishing of needle rollers were ineligible for Modvat credit under Rule 57A of the Central Excise Rules

Analysis: The exclusion in the Explanation to Rule 57A applies only to items specifically excluded from the definition of inputs. A product used in the manufacturing process does not become ineligible merely because it is used in machines or for polishing, unless it falls within the excluded categories. On the facts, the goods were treated as consumable inputs used in relation to manufacture and not as tools or disqualifying items.

Conclusion: Silicon carbide grains were eligible inputs for Modvat credit, and this issue was decided in favour of the assessee.

Final Conclusion: The assessee's entitlement to Modvat credit was upheld, and the departmental objection did not survive.

Ratio Decidendi: A consumable item used in or in relation to manufacture does not lose Modvat eligibility merely because it is also used for polishing or in machinery, unless it is specifically excluded by the governing explanation, and a new departmental ground cannot be introduced in appeal beyond the scope of the show cause notice.

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