Customs, Excise and Gold Tribunal - Tamil Nadu
Collectors Central Excise vs Asian Cables Ltd. on 25 July, 1995
Equivalent citations: 1996(81)ELT509(TRI-CHENNAI)
ORDER S. Kalyanam, Vice President 1. This appeal by the Departmernt is against the order of the Collector of Central Excise (Appeals), Bangalore, dated 29-6-1990 permitting Modvat credit in respect of the following items, used in the manufacture of blades : (a) Freon Solvent/Freon T.F. Solvent (b) Stropping paste Aluminium Oxide Polishing Powder (c) Trichloroethylene (d) Teflon Coated Glass Cloth It was contended on behalf of the Department that the inputs would not be eligible for Modvat credit since stropping paste is an aid for polishing and Trichloroethylene is for cleaning the lids of cannisters and the Teflon Coated Glass Cloth in which blades are made to pass through is used for to get smooth surfaces and scratch free blades. 2. Shri Ramasubramanian, the learned Consultant for the respondent contended that Freon Solvent is anti-rust or anti-corrosion preparation used in the manufacture of blades. Stropping paste is used for polishing and to sharpen the blade. Regarding Trichloroethylene, it is applied periodically to help the blade 100 per cent free from dust or impurity and if the same is not done the blade will get rusted impairing its marketability due to lack of quality. Teflon Coated Glass Cloth is used to prevent distortion to the blades and impart a scratch free surface finish to the blades during the process of manufacture. 3. We have gone through the records and heard the parties and gone into the functional aspects of the various items involved. We agree that Freon Solvent, Stropping paste and Trichloroethylene are inputs having regard to the functional use in relation to the end product, while we do not agree with the learned Consultant that Teflon Coated Glass Cloth having regard to its function cannot be considered to be an input. Reliance was placed by the respondent on the ratio of the ruling of the Supreme Court in the case of Collector of Central Excise v. Eastend Paper Industries Ltd., reported in 1989 (43) E.L.T. 201 (S.C.) in support of the plea that anything required to make the goods marketable must form part of manufacture and any material used for the same would be component part for the end product. Reliance was also placed on the ruling of the Supreme Court in the case of Collector of Central Excise v. Ballarpur Industries Ltd. reported in 1989 (43) E.L.T. 804 (S.C), wherein the Supreme Court has held that input used in the integrated process of manufacture should be treated as raw material having been used in the end product. On consideration of the ratios of the said rulings and the principles applicable under the Modvat scheme, keeping in mind the nature of the goods in question and their functional use, we hold that the goods except Teflon Coated Glass Cloth would be entitled to Modvat credit. In the result the appeal of the Department is allowed in part to the above extent and would stand dismissed in other respects. Sd/- (S. Kalyanam) Vice President 4. The Cross objection is in the nature of a counter and is dismissed as mis-conceived in law. V.P. Gulati, Member (T)
5. I have perused the order recorded by my learned Brother. While I agree with him that so far as Modvat credit in respect of Stropping paste, which is described as a polishing aid is concerned, Modvat credit has to be allowed and the same is not admissible in respect of Teflon Coated Glass Cloth. I am not able to persuade myself to agree with him that Modvat credit in the case of Trichloroethylene taking into consideration the use of this item in the appellant's factory is admissible under Rule 57A of the Modvat Rules. So far as Freon Solvent is concerned, while my learned Brother has held that the benefit would be available in respect of the same, I would like to observe that the Collector in his authorisation while praying for modification of the learned lower appellate authority's order has stated that partial modification in allowing Modvat credit in respect of Freon Solvent/Freon TF solvent should be allowed and in respect of the other three items the same should not be allowed. These three items specifically mentioned are Stropping paste, Trichloroethylene and Teflon coated glass cloth and the reasons for which Modvat credit should not be allowed in respect of these three have also been briefly set out in the authorisation issued by him under Sub-section 2 of Section 35B of the Central Excises & Salt Act, 1944. The matter was argued before us in respect of the above mentioned three items. In the appeal memorandum the Assistant Collector who was authorised to file appeal has also prayed for setting aside the order of the lower appellate authority allowing Modvat credit in respect of Freon Solvent/Freon TF solvent also alongwith the other items. It has to be held therefore that the Assistant Collector has unauthorisedly included the plea in regard to Freon Solvent/Freon TF solvent in his appeal and the matter is required to be decided only in the context of the other three items. I therefore, hold that we are not called upon to pronounce the admissibility or otherwise of Modvat credit in respect of Freon solvent/Freon TF solvent.
6. In regard to the other three items, taking into consideration the pleas of both the sides, my observation is as under :
(1) Stropping paste. Its use and composition as given in the appeal memorandum is as under :
Stropping Paste as clarified by the assessee is Aluminium Oxide Polishing compound, consisting of abrassive material in the form of paste, is used as an aid for polishing and cannot be called as an input to fall within the purview of Rule 57A ibid The Respondents have given following write-up in the paper book filed before us :
Stropping paste is an aluminium oxide polishing compound. This will be in a rectangular block form and the specifications and consumption details of which are appended marked Annexure III.
This paste is applied manually to the periphery of the leather disc's periodically (twice a shift), depending on the finish required to be achieved, which should enable the product to sell itself on the basis of such quality.
The photograph of the above process is enclosed at Annexure VII.
Thus the stropping paste is applied to the blade surface through the medium of leather discs. The stropping paste application removes rough edges in the blades, and if such rough edges are not removed the blades cannot be used at all.
It is seen from the above, that so far as stropping paste is concerned, the same is necessary to bring about the desired finishing on the blades. Use of the item has a bearing on the quality of the blades produced and the same being not the type of excluded category from the purview of the Modvat Scheme, by virtue of the proviso to Rule 57A of the Rules, it has to be considered as having been used in or in relation to the manufacture of the finished product and for that reason, therefore, Modvat credit has to be allowed in respect of the same.
(2) Trichloroethylene. So far as the use of this item is concerned, the learned Appellant Collector in his appeal memorandum has set out as under:
The Chemical Trichloroethylene is used for cleaning the lids of can-nisters that is appliances in which blades are loaded for heat treatment.
The Respondent in the technical write-up has explained the position in regard to the use of Trichloroethylene as under :
"In order to have both the edges of blades remain clean, the blades are subjected to 'Heat clean' process. The blades have an extremely smooth surface and it is imperative that a clean surface is maintained during 'heat cleaning operation'. To increase the life of the blade, chrome is coated on the blade's edge through the process of 'sputtering'. In order that blades do not get rusted leading to loss of keenness on the edge, they are heat cleaned in a furnace, after they are loaded into cannisters. The Cannister necessarily has to be free from any deposits or foreign particles which would mar the cleanliness of the blade's edge. For this purpose a cleaning fluid called Trichloroethyteneigjised. This is applied periodically so as to help the blade be 100% free from any dust or impurity. If these cleaning operations are not done by using Trichloroethylene, the blades will get rusted thereby impairing its marketability, due to loss of quality."
During the course of the hearing we had specifically asked the representative of the Respondent as to whether Trichloroethylene is used in the cannisters when blades are received in the same and whether the blades are processed with Trichloroethylene in cannisters. It is seen that blades are put through the process of sputtering to give the same a chrome coating and they are heat cleaned in the furnace after they are loaded into the cannisters. Trichloroethylene is not used for cleaning of the blades. No heating is done in the presence of Trichloroethylene and the same is used for cleaning of cannisters periodically to remove any impurities sticking thereon. Use of Trichloroethylene is therefore in the nature of maintenance of equipment rather than used in the process of manufacture of blades. The use of the same has to be compared with that of machinery cleaning and we have held in a number of cases that any use of the materials for the purpose of maintenance of machinery cannot be taken to be used in or in relation to the manufacture of the goods but used in connection with making the machinery functional and such goods used cannot be taken to be inputs as covered by Rule 57A for the purpose of Modvat credit. In the case of Andhra Pradesh Papers Mills Ltd v. Collector, Guntur [reported in 1990 (50) E.L.T. 252 (Tri.)]in Order No. 299/90, dated 4-4-1990 we have held that Hydrochloric Acid used for cleaning the wire mesh when the same is found to have been clogged cannot be taken to be used in or in relation to the manufacture of paper as the input was used in the maintenance of machinery. Similar view was taken in the case of M/s Delta Paper Mills Ltd. [reported in 1992 (62) E.L.T. 58 (Tri.)] in Order No. 152/92, dated 9-3-1992 where Hydrochloric acid used was for cleaning felts. I, therefore, following the ratio of these decisions hold that the benefit of Modat credit in respect of Trichloroethylene cannot be allowed.
(3) Teflon Coated glass cloth : The learned appellant Collector in regard to the use of the same has set out as under in the appeal memorandum.
"Teflon coated glass cloth in which blades are made to pass through the smooth surfaces to get scratch free blades and to have smooth surface."
The Respondents in their write-up submitted before as under :
"Teflon glass cloth is used during the process of heat treatment. It is essential for the manufacture of both double edge and twin blade. The Teflon Coated Glass Colth (TCGC) is used in this operation. The TCGC is smooth frictionless material. The blade strips in the furnace after exit are around 200 degrees Celcius. At this temperature they are passed through a chill block to suddenly cool it to achieve desired metallurgical structure. It is very essential that the chill block should have very flat surface and should not create any friction or scratch on the blade surface. To ensure this the TCGC is used. This is inserted between chil block and it sandwiches blade as it passes through chill block, as shown below.
I observe that Teflon coated glass cloth as seen from the write up given by the Respondents is used more in the nature of sleeve over a chill block. Its use has to be taken to be with reference to make the machinery for the manufacture of blades functional. No doubt, the blades pass through these Teflon coated glass cloth sleeves. This operation has to be considered like passing of the material through the roller of a machinery when steel is manufactured. Use of Teflon coated glass cloth cannot to held to be to bring it within the purview of the term 'input' as set out in Rule 57A of the Modvat Rules.
I, therefore, allow the appeal of the Department partially in the above terms.
Sd/-
(V.P. Gulati) Member (T) Dated : 24-11-1993 POINTS OF DIFFERENCE Whether in the facts and circumstances of the case the view taken by the learned Member (J) that excepting Teflon coated glass cloth, all other items would be entitled to Modvat credit, or the view taken by Member (T) that admissibility of Modvat credit in respect of Freon Solvent/Freon TF solvent need not be gone into by the Tribunal and among the other three items viz Stropping paste, Trichloroethylene and Teflon Coated glass cloth, only Stropping paste would be admissible inputs for Modvat credit.
Sd/- Sd/-
(S. Kalyanam) (V.P. Gulati)
Dated : 24-11-1993 Vice President Member (J)
G.A. Brahma Deva, Member (J)
7. Since there has been a difference of opinion between the two Members of the Bench who have heard the matter originally, the following points of difference has been referred to me for my opinion:- -
"Whether in the facts and circumstances of the case the view taken by the learned Member (J) that excepting Teflon coated glass cloth, all other items would be entitled to Modvat credit, or the view taken by Member (T) that admissibility of MODVAT credit in respect of Freon solvent/Freon TF solvent need not be gone into by the Tribunal and among the other three items viz. Stropping paste Trichloroethylene and Teflon Coated glass cloth, only Stropping paste would be admissible inputs for Modvat credit."
8. Heard Sh. G. Ranganath, authorised representative appeared on be-halt of the appellants and the department was duly represented by Sh. Indrajit, the learned DR.
9. Sh. Ranganath, arguing for the appellants, submitted that the dispute is in respect of Trichloroethylene, since no appeal was filed by the department in respect of Freon solvent/Freon TF solvent and the Tribunal need not go into that issue as it was rightly observed by the Hon'ble Member (T) and in respect of the item stropping paste/Aluminium Oxide polishing powder both the Members have held that the item is entitled for Modvat credit and similarly both of them have held that Teflon Coated glass cloth cannot be held to be bringing it within the purview of the term "input" for entitlement of Modvat credit. He contended mat Member (T) is not correct in observing that use of Trichloroethylene is in the nature of maintenance of equipment. He said that this solvent is used in the process of cleaning lid and consequently it is used in or in relation to the manufacture of the finished product, namely blade and accordingly as such the item is entitled to Modvat credit. He emphatically argued that it is used and consumed in the maintenance of process and not for maintenance of equipment. In support of his contention that so long as they are used in or in relation to the manufacture of the final product and are not specifically excluded and the raw material need not necessarily be present in the final product as it was consumed in the process directly or indirectly in a manufacturing system, the Modvat credit has to be allowed, he referred to the following decisions:
(1) Cans & Closures Ltd. v. Collector reported in 1991 (56) E.L.T. 474.
(2) Sandhur Manganese & Iron Ors. v. Collector, reported in 1985 (21) E.L.T. 901 (Tri.) (3)Collector v. Titaghur Paper Mills, reported in 1985 (21) E.L.T. 904 (Tri.)
10. Sh. Indrajit, the learned DR, submitted that item Trichloroethylene was used for the maintenance of a machinery and not directly connected with the process of manufacture of final products and the item used for cleaning the machinery cannot be considered as an input and accordingly Modvat credit in respect of Trichloroethylene cannot be allowed as it was rightly observed by Member (T).
11. I have considered the submissions made by both the sides with reference to the difference of opinion. It is settled position that the item need not be physically present in the final product for entitlement of benefit of Modvat credit and it is sufficient if it is used/consumed directly or indirectly in the process of manufacture of the finished product. In the facts and circumstances and in view of the ruling of the Supreme Court in the case of Collector v. Eastend Paper Industries Ltd., reported in 1989 (43) E.L.T. 201 that anything required to make the goods marketable must form part of the manufacture and any material used for the same would be component part for the end product and as well as the ruling of the Supreme Court in the case of Collector v. Ballarpur Industries Ltd., reported in 1989 (43) E.L.T. 804 that the input used in the integrated process of manufacture should be treated as raw material having been used in the end product, as observed by Member (J) in his proposed order and in view of the liberalisation, I concur with the view expressed by Member (J) in allowing the Modvat credit in respect of the item Trichloroethylene. Since no appeal has been filed by the department in respect of the items Freon solvent/Freon TF solvent as it was rightly pointed out by both the sides the admissibility of Modvat credit in respect of these items need not be gone into by the Tribunal, as it was rightly held by the Member (T).
12. Accordingly, the matter is disposed of and the case file is returned to the Regular Bench to pass an appropriate order.
Sd/-
(G.A. Brahma Deva) Member (T) FINAL ORDER The appeal is decided in the above terms in view of the majority decision.