1997 (7) TMI 342 - AT - Central Excise

Hydrogen Gas Eligible for Modvat Credit in Ancillary Processes

The Tribunal held that hydrogen gas qualifies for Modvat credit under Section 57A, even if not directly used in the final product's manufacture but in an ... Modvat Issues:1. Eligibility of hydrogen gas for Modvat credit under Section 57A.2. Interpretation of 'used in relation to the manufacture' under Rule 57A of the Central Excise Rules.Analysis:1. The case involved the issue of whether hydrogen gas qualifies as an eligible input for Modvat credit under Section 57A when used in the manufacturing process of sodium cyanide. The Assistant Commissioner initially denied the credit, stating that hydrogen gas was not directly used in the final product's manufacture but in an intermediate stage. However, the Commissioner (Appeals) overturned this decision, emphasizing that direct use in the main manufacturing process is not a prerequisite for Modvat credit eligibility.2. The Tribunal considered various precedents, including the case of Indian Farmers Fertilizers Co-operative Ltd. v. Collector, where the use of ammonia gas for maintenance purposes was initially deemed ineligible for exemption. However, the Supreme Court later overruled this decision, stating that inputs used in off-site plants can still be eligible. Additionally, the Tribunal's decision in Ramakrishna Steel Industries Ltd. v. Collector of Central Excise highlighted that materials used in ancillary processes, like chemicals in sand mixture for producing steel casting, can be considered eligible inputs under Rule 57A.3. In light of these precedents, the Tribunal concluded that hydrogen gas, despite not being directly part of the main manufacturing process of sodium cyanide, plays a significant role in its production. Therefore, the hydrogen gas can be considered as 'used in relation to the manufacture' of the final product, sodium cyanide. Consequently, the Tribunal upheld the Commissioner (Appeals)'s decision and rejected the Department's appeals.4. The cross-objections in the case were deemed misconceived as the impugned orders favored the respondents, leaving no grounds for them to be aggrieved. Therefore, the Tribunal disposed of the appeals and cross-objections accordingly, affirming the decision in favor of the respondents.