Customs, Excise and Gold Tribunal - Mumbai
Kopran Ltd. vs Collector Of Central Excise on 19 April, 1993
Equivalent citations: 1993ECR555(TRI.-MUMBAI), 1993(67)ELT377(TRI-MUMBAI)
ORDER R. Jayaraman, Member (T)
1. Both the appeals are against the common order-in-appeal passed by the Collector of Central Excise (Appeals), Bombay bearing No. SDK/343 & 551-B11/91 dated 17-12-1991. Since the issues involved are the same, they were heard together and hence proposed to be disposed of by the common order.
2. The appellants are manufacturers of Patent or Proprietary medicines and for the manufacture of two medicaments namely Amoxicillin Tri-hydrate and Ampicillin Tri-hydrate they bring certain common duty paid inputs, one of which is liquid nitrogen, on which modvat credit was availed of by the appellants. The other raw materials namely Danesalt and 6APA are treated in the reactor vessel with the help of liquid nitrogen, used for flushing out the air from the reactor vessel and to keep it under inert atmosphere to prevent oxidisation during reaction, to keep the atmosphere in a chilled condition and also to prevent explosion in the reactor vessel which could happen, if an inert atmosphere is not created during reaction. As a result of audit of the Factory's modvat availment, the department alleged that liquid nitrogen does not participate in chemical reaction and modvat credit is not eligible. Two Show Cause Notices were issued accordingly for two different periods. The Assistant Collector held that liquid nitrogen is used in relation to the reactor vessel and hence is identified with the use of the appliance. Hence he denied the modvat credit and confirmed the demands covered by both the show cause notices. On appeal before the Collector (Appeals), he rejected the appeals from the appellants, holding that nitrogen is an input for machine, for creating external conditions for reaction. The present appeals are therefore before the Tribunal.
3. We have heard the arguments from both the sides, also pursued the write up given by Dr. R. Sajgardabde giving the process of manufacture of the two specified bulk drugs. We also perused the impugned orders of the lower authorities. The case laws cited by either side were also taken into consideration. For the sake of brevity, we are not recording all the arguments and case laws cited by either side, separately. We will deal with them in the appropriate places in our findings.
4. Before that, the following undisputed factual aspect on the usage of liquid nitrogen, is required to be set out.
(i) Raw materials namely Danesalt is reacted with 6APA in a reactor vessel at -50°C to yield both the products. This reaction is possible at extremely low temperature. Nitrogen comes in handy as a chilling agent in the reactor vessel.
(ii) Besides, Nitrogen has the property of being an inert gas and it is purged into the vessel directly, so as to enable proper and efficient reaction, by preventing oxidation and decomposition, as soon as the product is formed.
(iii) Liquid nitrogen is purged in the reactor vessel only in the case of reaction for these two bulk drugs and the reactor vessel is used as such, without liquid nitrogen for other bulk drugs, where such inert and chilled atmosphere is not called for.
(iv) Liquid nitrogen purged in the reactor vessel is vented out and is not recycled in the vessel.
(v) Liquid nitrogen as raw material does not participate in the reaction, but it is pleaded that it is an essential consumable input needed for reaction to be achieved to the required degree of efficiency. Otherwise, the final product arising out of reaction will get decomposed, and oxidised.
(vi) Reactor vessel is the main processing unit and not an auxiliary unit.
5. The main thrust of Shri Mondal's argument is that it is a refregerant gas required for chilling the reactor vessel to keep the reactor vessel operational and hence it is an item needed for the operational efficiency of the reactor vessel. This Bench has held that items like Ramming mass, refractory bricks are materials used for upkeep and maintenance of the furnaces and hence they cannot be construed to be inputs used in or in relation to the manufacture of steel castings [vide Mukund Iron and Steel - 1990 (45) E.L.T. 84]. On the same ratio, liquid nitrogen which does not participate in reaction but is needed for making the reactor vessel operational, cannot be construed to be an input used in or relation to manufacture of the final product.
6. In the light of factual position, on the use of liquid nitrogen in this case, we have examined the various case laws cited by both the sides. There is no dispute that liquid nitrogen is needed for creating a proper atmosphere (both chilling and inert atmosphere) in the reactor vessel and if it is not used, chemical reaction process will be affected. It is also submitted that reactor vessel, as such, is ready for operation for reaction of other inputs used in the preparation of other bulk drugs. Only in the case of these two specified final products, for achieving the required efficiency of reaction, liquid nitrogen is purged in the reactor vessel. As seen from the write up, we find this position reflected particularly with regard to the manufacture of these two specified drugs. It is not an item like ramming mass or refractory bricks, which are constructional materials for building up furnace or for repairing and re-conditioning the furnace. Hence we are unable to persuade ourselves to accept that the ratio of Mukund Iron case on ramming mass/refractory bricks would stand attracted in the case. But we find that the ratio of the same citation (Mukund Iron case) allowing modvat in the case of acetylene gas would stand attracted. Though we agree that liquid nitrogen cannot be accorded the status of raw material participating in chemical reaction, it is a consumable essentially required for ensuring proper chemical reaction to take place in the reactor vessel. Rule 57A does not restrict the benefit only to raw materials. The criterion to be considered is whether the item is used in or in relation to the manufacture of final product. We are unable to hold that it is an item needed for upkeep or operational need of the equipment. Liquid nitrogen is purged into the vessel only for obtaining the final product by ensuring proper chemical reaction to take place in the vessel. If this is not done, the final product would not emerge properly. Hence, we are to accept the plea that it is a consumable item used in relation to the manufacture of final product. It is now settled law that input need not be physically present in the final product. The Apex Court in the case of Collector of Central Excise v. Ballarpur Industries - 1989 (43) E.L.T. 804 (SC) (vide Para 5) have held that the valid test to be applied is whether the ingredient is essential for the chemical process culminating in the emergence of the final product desired. Having regard to its importance and indispensibility for the process, if it is found necessary for chemical process, it should be regarded as an input. The relevant test is not the presence of the input in the final product. Applying this test laid down by the Apex Court, we find that in this case, liquid nitrogen is purged into the reactor vessel only for ensuring the chemical reaction to take place for obtaining the desired final product. It is not an item required for operational need of the reactor vessel. It is a consumable item required to be purged into the vessel for getting proper chemical reaction to achieve the final product. Hence we allow both the appeals with consequential relief.