1997 (10) TMI 232 - AT - Central Excise

Inputs for manufacturing process qualify for Modvat credit

The judge allowed the appeals, ruling that inputs like fuel oil used for generating steam, which was further used in the manufacturing process of carbon ... Modvat credit available for fuel Issues:- Entitlement to Modvat credit for steam used in the manufacture of electricity and carbon black.- Classification of steam and electricity as intermediate or final products for Modvat credit eligibility.Analysis:1. The appeals involved a common question of whether the appellants were entitled to Modvat credit for steam used in manufacturing electricity and carbon black. The appellants claimed Modvat credit under Rule 57G for inputs like Light Diesel Oil (LDO) and Furnace Oil used as fuel. The department issued show cause notices questioning the usage of these inputs for Modvat credit.2. Both authorities rejected the plea that steam or electricity could be considered inputs for the manufacture of carbon black. The Commissioner relied on a judgment stating that only goods emerging as intermediate products could be covered under Modvat credit provisions. The appellants argued that the Commissioner misdirected himself by not considering other Tribunal judgments supporting their claim.3. The appellants' advocate cited various Tribunal judgments, including Reliance Industries Ltd. and Western India Plywoods Ltd., to support their claim that inputs used for the manufacture of final products should be eligible for Modvat credit. They argued that all benches of the Tribunal consistently held this view, contrary to the Commissioner's decision.4. The Department argued that steam and electricity were exempted final products, and since no duty was paid on them, Modvat credit eligibility did not apply. The appellants clarified that they were claiming Modvat credit on LDO/Furnace Oil, not on steam or electricity, which were intermediate products integral to the manufacturing process.5. The judge found that the Commissioner erred in relying on a judgment that had been overruled by the Madras High Court. The judge referenced various Tribunal judgments, including Reliance Industries Ltd. and Rathi Alloys & Steel Ltd., to establish that inputs like fuel oil used for generating steam, which was further used in the manufacturing process, should qualify for Modvat credit. The judge set aside the Commissioner's decision and allowed the appeals based on the consistent Tribunal rulings and Supreme Court judgments supporting the appellants' claim.