1993 (9) TMI 198 - AT - Central Excise

Tax Tribunal: Modvat Credit for Machinery Parts in Paper Manufacturing Disallowed

The Tribunal considered the admissibility of Modvat Credit for metallic wire netting and dryer felt used in paper manufacturing, determining they are ... Modvat Credit Issues Involved:1. Admissibility of Modvat Credit for metallic wire netting of Phosphor Bronze and Dryer felt of woollen cloth.2. Interpretation of Rule 57A regarding the classification of inputs.3. Consideration of previous Tribunal and High Court decisions on similar matters.4. Need for a larger Bench to resolve differing interpretations.Issue-wise Detailed Analysis:1. Admissibility of Modvat Credit for Metallic Wire Netting and Dryer Felt:The common issue in all three appeals is whether Modvat Credit is admissible for metallic wire netting of Phosphor Bronze and Dryer felt of woollen cloth, declared as inputs used in the manufacture of paper. The appellants filed a declaration under Rule 57A, but the Department issued Show Cause Notices alleging these items are part of machinery, not consumables. The Asstt. Collector confirmed the demands for reversal of Modvat Credit, holding these items are used in removing water from the pulp and drying as parts of machinery. The Collector (Appeals) upheld this view, stating that these items are essential parts of the machine for processing and making paper and are excluded from Modvat benefit as per the explanation to Rule 57A.2. Interpretation of Rule 57A:The Tribunal noted the factual position regarding the usage of the two items:- Wire net: Fitted and wound over rollers of the paper-making machine to form a uniform layer of pulp and drain water.- Felt: Acts as a conveyor belt to carry the paper web through squeezing rollers, dryer, and calender.Based on this, the Tribunal observed that these items are replaceable attachments to the paper-making machinery, used as parts for the functional operation of the machine, and thus excluded from Modvat Credit by virtue of the explanation to Rule 57A.3. Consideration of Previous Decisions:The Tribunal referenced several previous decisions:- Poysha Ind. Co. Ltd. (1991): Lithographic plates and rubber blankets used as attachments to printing machines were ruled ineligible for Modvat Credit.- Andhra Pradesh Paper Mills (1990): Similar items were disallowed Modvat benefit.- Associated Cement Co. (1990): Items used for maintenance of machinery were held ineligible for Modvat Credit.The Tribunal also considered the revised approach by the East Regional Bench in Straw Products (1992), which allowed Modvat benefit for similar items, and noted the necessity to address the differing interpretations.4. Need for a Larger Bench:The Tribunal identified several grey areas and differing interpretations that necessitate consideration by a larger Bench:- Whether section notes and chapter notes for classification of excisable goods could be used for interpreting terms in Rule 57A.- Whether parts of machines, not specifically excluded, could be considered inputs under Rule 57A.- The applicability of the East Regional Bench's decision in Straw Products.The Tribunal also noted the Calcutta High Court judgment in Singh Alloys & Steel Ltd. (1993), which considered the classification of ramming mass and its implications for Modvat Credit eligibility.Conclusion:In view of the differing interpretations and the need for a consistent approach, the Tribunal directed the Registry to refer the issues to a larger Bench for a decision. The issues to be considered include the interpretation of section notes and chapter notes, the inclusion of parts of machines as inputs, and the acceptance of the East Regional Bench's decision in Straw Products. Identical issues in the case of M/s. Divecha Glass Industries were also referred to the larger Bench.