1996 (7) TMI 264 - AT - Central Excise

Refactories not eligible for Modvat credit as constructional materials, not inputs. Appeal rejected.

The Tribunal concluded that refractories are not considered inputs for the manufacture of iron and steel products but are constructional materials for the ... Modvat - Refractories used for lining of electric arc furnace Issues Involved: Eligibility of Modvat credit on refractories used for lining electric arc furnaces in the manufacture of iron and steel products.Issue-wise Detailed Analysis:1. Eligibility of Modvat Credit on Refractories:The appellants contended that refractories used for lining electric arc furnaces should be considered as inputs for the manufacture of iron and steel products, thereby qualifying for Modvat credit. They argued that refractories are consumable items and not part of the furnace itself. They cited various precedents, including the Tribunal's decision in Steel Authority of India (1989) and Mukund Iron and Steel Works Ltd. (1990), which classified refractories as part of machinery and equipment, thus eligible for Modvat credit. They also referred to the Calcutta High Court's decision in Singh Alloys & Steel Ltd. (1993), which held that refractories, whether in powder or solid form, are not integral parts of furnaces and thus should be eligible for Modvat credit.2. Interpretation of Rule 57A and Rule 57G:The appellants argued that they complied with the procedures under Rule 57G and that Rule 57G had no bearing on the availing of Modvat credit. They emphasized that exclusions to beneficial legislation like Modvat credits should be construed strictly, while inclusions should be interpreted broadly. They cited Supreme Court decisions in Doypack Systems (1988), Eastend Paper Industries (1989), and Rajasthan State Chemical Works (1991) to support their interpretation.3. Technical Nature of Refractories:The appellants submitted that refractory bricks used during steel making get consumed and form part of the liquid steel and slag. They argued that refractory material is present in the steel product in the form of finely dispersed non-metallic inclusions and also in the slag as oxide, contributing to essential steel-making reactions like desulphurization.4. Tribunal's Previous Decisions:The respondents, represented by the SDR, argued that the Tribunal in Raipur Alloys' case clearly held that refractories are not inputs used in the manufacture of iron and steel products. They contended that the Raipur Alloys judgment, being the latest, should prevail over earlier judgments. The Tribunal had distinguished between ramming mass (eligible for Modvat credit) and refractory bricks (not eligible), classifying the latter as constructional material for the furnace, thus excluded under Rule 57A.5. Analysis of Precedents and Legal Interpretations:The Tribunal examined various precedents, including Mukund Iron and Steel Works Ltd. (1990), Singh Alloys (1993), and A.B. Tools Ltd. (1994). They found that refractory bricks are constructional materials for the furnace and not inputs used in the manufacture of iron and steel products. The Tribunal noted that the Calcutta High Court's decision in Singh Alloys pertained to ramming mass, a chemical product, and not refractory bricks. They emphasized that refractory bricks are separately classifiable goods obtained by firing specific materials, unlike ramming mass, which is a chemical product.6. Supreme Court's Observations:The Tribunal referred to the Supreme Court's observations in Ballarpur Industries Ltd. (1989), J.K. Cotton Spinning & Weaving Mills Co. (1965), and Mahalakshmi Oil Mills (1988), which distinguished between manufacturing process and apparatus. They highlighted that the presence of raw materials in the end product is not the relevant test, but rather the dependence of the end product on the essential presence of the material in the manufacturing process.Conclusion:After careful consideration of the submissions and various judgments, the Tribunal concluded that refractories are not inputs used in or in relation to the manufacture of iron and steel products. They held that refractory bricks are constructional materials for the furnace and thus fall under the excluded category under Rule 57A. Consequently, the appeal was rejected, and Modvat credit on refractories was disallowed.