1998 (6) TMI 266 - AT - Central Excise

Tribunal grants Modvat credit for essential manufacturing inputs, denies for maintenance items.

The Tribunal allowed Modvat credit for Oxygen in Cylinder/Dissolved Acetylene, Sulphuric Acid, Hydrochloric Acid/Caustic Soda, and Branding Inks as they ... Modvat - Issues Involved:1. Oxygen in Cylinder/Dissolved Acetylene2. Sulphuric Acid3. Hydrochloric Acid/Caustic Soda4. Paints (Anti Coating)5. Branding Inks6. Pentolite Booster7. Refractory Cement, Fire Bricks/Refractory Bricks, Carbon Brushes/Electrode and similar items, Diodes, Transistors, Wires, and CablesIssue-wise Detailed Analysis:1. Oxygen in Cylinder/Dissolved Acetylene:The appellants argued that these gases are used for maintenance of equipment, specifically for cutting, removing, heating, and fixing wear liners in mills, which is integral to the manufacturing process. The Tribunal initially held that inputs used for maintenance are not eligible for Modvat credit. However, upon review, it was determined that these gases are essential for the replacement of liners in mills, which directly impacts the manufacturing process. Thus, Modvat credit was allowed, aligning with similar cases where gases used in manufacturing processes were deemed eligible.2. Sulphuric Acid:The appellants used Sulphuric Acid for water treatment in the cooling system of the condenser, which is crucial for power generation in the Captive Thermal Power Plant, indirectly affecting cement production. Initially, the Tribunal denied Modvat credit, stating it was not used directly in the manufacturing process. However, upon further review, it was noted that water treatment is essential for the generation of power, which is integral to the manufacturing process. Thus, Modvat credit was granted, following precedents where chemicals used in essential processes related to manufacturing were allowed credit.3. Hydrochloric Acid/Caustic Soda:These chemicals are used for the regeneration of resin beds in the demineralization of water, which is necessary for boiler operations in power plants. The Tribunal recognized that the regeneration process is integral to the manufacturing process as it ensures the continuous generation of power, crucial for cement production. Therefore, Modvat credit was allowed, consistent with past decisions where inputs with a direct nexus to the manufacturing process were eligible for credit.4. Paints (Anti Coating):The paints are used to prevent dust from settling on fan impellers, thus maintaining efficiency and preventing vibrations. The Tribunal held that since these paints are used for maintenance purposes, they do not qualify for Modvat credit. This decision was consistent with the principle that maintenance inputs are not considered as used in or in relation to the manufacturing process.5. Branding Inks:The inks are used for marking bags as per statutory requirements, making the goods ready for marketing. The Tribunal allowed Modvat credit, referencing the Supreme Court's stance that materials used to make the finished product marketable are considered as used in or in relation to the manufacturing process.6. Pentolite Booster:There was no dispute regarding this item; hence, no order was required.7. Refractory Cement, Fire Bricks/Refractory Bricks, Carbon Brushes/Electrode and similar items, Diodes, Transistors, Wires, and Cables:These items are used for maintenance and as parts of equipment. The Tribunal held that since they are used for maintenance or constitute parts of equipment, they do not qualify for Modvat credit. This decision aligns with the principle that inputs used for maintenance or as equipment parts are not considered as used in or in relation to the manufacturing process.Majority Decision:The appellants are entitled to Modvat credit for:1. Oxygen in Cylinder/Dissolved Acetylene2. Sulphuric Acid3. Hydrochloric Acid/Caustic Soda4. Branding InksThe appellants are not entitled to Modvat credit for:1. Paints (Anti Coating)2. Refractory Cement, Fire Bricks/Refractory Bricks, Carbon Brushes/Electrode and similar items, Diodes, Transistors, and Wires & CablesThere is no dispute regarding Pentolite Booster, and hence no order was passed.