Customs, Excise and Gold Tribunal - Delhi
Collector Of Central Excise vs Raipur Alloy Steels Ltd. on 21 February, 1995
Equivalent citations: 1995(78)ELT44(TRI-DEL)
ORDER Jyoti Balasundaram, Member (J)
1. The issue of eligibility to Modvat credit on Fire Bricks and Dead Burnt Magnesite used in the manufacture of steel arises for determination in the above appeal filed by the Department against the order of the Collector (Appeals), New Delhi. The authorities below had extended Modvat credit on these two items treating them as inputs for the manufacture of steel. The case of the Department is that these items are not consumable inputs, do not form part of the finished product, and require frequent replacement and, therefore, form a part of machinery or equipment for producing final product and hence excluded from the benefit of Modvat in terms of Explanation 1(b) to Rule 57A of the Central Excise Rules, 1944. On the other hand the respondents contend that the items are consumable inputs used in the manufacture of steel; they are used to line the electric arc furnace and serve the same purpose as ramming mass. In fact, Fire Bricks are nothing but a solidified form of ramming mass and applying the ratio of the Hon'ble Calcutta High Court in the case of Singh Alloys & Steel Ltd. v. Assistant Collector of Central Excise, reported in 1993 (66) E.L.T. 594 (Cal.), extending Modvat to ramming mass (which judgment has been followed by the Larger Bench of this Tribunal in the case of A.B. Tools Ltd. and Punjab Iron & Steel Company Pvt. Ltd. [Order No. A/229 and 230/94-NRB, dated 23-2-1994 - reported in 1994 (71) E.L.T. 776 (Tri.)] the two items in dispute in this appeal should also be held eligible for benefit of Modvat credit.
2. We have heard Shri V.C. Bhartiya, learned DR and Dr. A.M. Singhvi learned Senior Advocate along with Shri C. Mukhopadhyay, learned Advocate, carefully considered their submissions and perused the technical literature on record. At the outset, the learned DR concedes that the ratio of the Calcutta High Court judgment in the case of Singh Alloys (supra) wherein ramming mass has been held to be an input for the manufacture of steel eligible to the Modvat benefit, will be applicable to dead burnt magnesite which is also a type of ramming mass. We, therefore confine our finding to the eligibility of Fire Bricks to Modvat.
3. The respondents manufacture steel using electric arc furnace in which raw materials scrap, ferro alloys, etc. are processed with the help of electricity, electrodes, additives, consumables, refractories and other inputs. In the course of manufacture of ingots and billets, fire-bricks melt along with liquid metal, and after about 100 to 200 heats remaining parts of fire bricks have to be removed and fresh lining has to be put in the furnace for further processing. Refractories like firebricks have chemical contents generally in the form of magnesium oxide, calcium oxide, etc. They are indispensable items in the manufacture of steel. According to "Introduction to Refractory Products" by P.T. Rothenbuchler - "Refractory products have to be able to deal with heat and energy emanating from a variety of substances - ignited solids, liquids, gases without undergoing intrinsic change. They are not part of the construction materials of process equipment - refractory linings are distinct from the structure of the unit concerned. Refractories do not merely resist heat and withstand rapid changes in the temperature. But they also participate in facilitating certain chemical reaction in the steel making furnace which remove harmful elements like phosphorus and sulphur for e.g. 3(CaO) + 5(FeO) + 2 = (3CeO. P205) + (Fe) (CAO + (S) + (M) = (CaS) + (MO). Specifications of refractories used depend upon the nature and kind of steel manufactured i.e. whether mild steel, high carbon steel, alloy steel, etc. They are consumed with a short period of after one cycle and are non-reusable.
3.1 Dr. S.S. Ghose, Ex-Chairman of the Development Panel for the Refractory Industry, Directorate General of Technical Development, Government of India has opined (page 36 of the paper book No. 1) that:
"The ability to withstand high temperature is critical to classifying a material as a "refractory". However, as the foregoing definition of "refractories" implies, the refractory material may be subjected to and as expected to resist not only high temperature but a variety of other destructive forces incident to its use. These include abrasion, impact, thermal shock, chemical attack, and high level loads at high temperature.
The electric arc furnace for steelmaking as also the ladles etc. are lined with different types and qualities of refractories so as to carry on the process of steelmaking and obtain reasonable and economic campaign life. However, in the process of steelmaking, refractories are always subjected to destructive forces and are worn out generally gradually but sometime quite abruptly. The lining is done when the refractories are worn out to such an extent that the structure becomes weak and unstable. This happens quite frequently and regular relining of the steelmaking and refining units including the ladles, tundishos is a necessary process, as in the case of graphite electrodes. Regular maintenance of refractory structures e.g. side walls, bottom etc. of the electric arc furnace by gunning refractory, fettling of the bottom is a necessary step for prolonging the campaign life of refractories.
Gunning and felting are replaced after a few heats or even after each heat in electric arc furnace steelmaking, refractories, therefore, constitute a major consumable stores item in steelmaking plants and a substantial part of conversion cost of steel is accounted for by refractories. In fact, this is more so in the case of steelmaking by the electric arc furnace route since consumption of refractories per tonne of steel produced by this route is maximum compared with the Basic Oxygen process of steelmaking.
It must be emphasised that refractories should not and are not allowed to lose their identity during steelmaking as in that case they cannot function as refractories to carry out steelmaking.
In the process of steelmaking, refractories are worn out due to reactions with slag molten steel etc Some of the constituents of the refractories get dissolved in the slag due to chemical reactions, etc. Change of slag chemistry is ample proof of those reactions, as also the presence of refractory inclusions in the steel. In fact the overall wear of refractories is very often monitored and expressed as millimetres of refractory wear per heat. This may vary from say 0.3 mm to 5 mm or more per heat in the case of electric arc steelmaking process, depending on the location of refractories, intensity of steelmaking, and other operational factors.
Refractories are, therefore, considered as essential inputs in the steelmaking process including the electric arc furnace making from the technical view point. These are never considered as part of the original equipment (electric arc furnace) like the graphite electrodes.
3.2 An extract from the book "Refractories and their Uses" by K. Shaw shows that production of iron and steel consumes about 70% of the total output of the refractories industry and that the aim of the refractories maker is to produce a lining material which will not react nor be penetrated by the slag or metal.
3.3 In general refractories are used in one of two forms - as refractory bricks and as granular refractory. Refractory brick is made in many special shapes and sizes and is used in contructing furnace walls, hearths, furnace roofs, etc. Granular refractory material is usually tamped in place and sintered or buried by the heat of the furnace, this forms a one piece or monolithic refractory as distinguished from a joint refractory formed by laying bricks (Reference page 262 Extractive Metallurgy by Joseph Newton; Edition - Wiley Eastern University).
Granular materials include all the types of unshaped refractories commonly known as castables, plastics, ramming mixes, gunning mixes and mortars. They usually are supplied in a bag, box, drum or other package and are .... Their use in most plants is growing at a faster rate than refractory bricks use. Today it is possible to obtain a denser quality bottom installation with brick and then by ramming. Because of the delay, extra effort and meticulous care in ramming, drying and burning in for the rammed bottom there is a trend to all ____bottom installation (Reference page 65 of Electric Furnace Steel Making - A publication of the Iron and Steel Society).
3.4 The consumable nature of refractories in Iron and Steel industry is brought out by technical literature such as Write up on Electric Arc Furnace Refractories by Bruce H. Baker Armco Inc. and Michael P. Fedock, (paper book No. 2 page 16) according to which the Indian Iron and Steel Industry consumes about 70% of the total refractories produced in India. Vol. 18-4 of SCATSI October 1989 refers to refractories as raw materials along with electrodes, natural gas, oil etc. for electric arc furnace.
3A. From the above, the following factors in respect of refractories in electric arc furnace emerge :
(i) Fire bricks are consumables and hence a part of working capital;
(ii) Electric arc furnace and its ladle must have either acidic or basic or neutral bricks depending upon the nature of refractory that will pass through;
(iii) Apart from being receptacle against high temperature refractories in electric arc furnace undergo major chemical reactions;
(iv) Bricks must be replaced after every heat cycle;
(v) Fire bricks do not form an integral part of the furnace.
4. In the case of Singh Alloys and Steel Ltd. (supra), the High Court considered the question of eligibility of dolopatch mix, magnesite peas and ramming mass to Modvat benefits and held that (a) the items were inputs in respect of steel ingots (b) they are not plant, machine, machinery appliances, etc. falling within the Exclusion Clause of Rule 57A. Relevant portions of the judgment [Paras 7 to 22] are reproduced below :
* * * * * *
5. In the case of fire bricks also they serve the purpose of lining in order to withstand heat while melting iron and the High Court's finding that ramming mass is not a part of the furnace, would apply with equal force to fire bricks. It is pertinent to note here that in the case of Steel Authority of India Ltd. v. Collr. of Customs reported in 1989 (42) E.L.T. 89, the Tribunal has held that "for an article to be called a part of an industrial furnace it must be something which is incorporated in the construction of the furnace. This is what the Explanatory Note under Heading 84.14 of the CCCN also implies when it states that:
"Many industrial furnaces and ovens incorporate equipment for charging or discharging for manipulating the doors, covers, hearths, or other moving parts, or for tilting the furnace, etc. Such lifting or handling equipment is to be classified with the furnace or oven provided that it forms integral part thereof; otherwise it is to be classified in Heading 84.22"
[Emphasis added].
It is not in dispute that the teeming ladles using in their construction the present refractory bricks of special quality and shape are receptacles for molten steel. They are not incorporated into, nor are they integral parts of furnaces. This is also clear from pages 181-182 of the book 'Materials and Technology' by J.H. DE BUSSY which states that:
"All crude steel is poured into ladles. These are refractory-lined steel buckets that range in capacity from amount a hundred weight (about 50 kg) to a hundred or more tones. They are brought along on overhead cranes. The smallest can be tipped over to pour their contents into whatever receptacle is waiting, but the common practice is to have a stopper in the bottom, and this can be removed by hinged and levered device to allow metal to flow out of the bottom. If the steel is further to be refined the ladle may go directly to a refining unit for stream or ladle degassing. Otherwise the molten metal is transferred (poured or teemed) to moulds in which it solidifies to make ingots, which can also range from a few hundred weights to many tons in weight. The steel ingot is the crude material for further treatment".
The refractory bricks cannot, therefore, be considered as component parts of industrial furnaces. The decision in the case Alembic Glass Industries Ltd. v. Collector of Customs reported in 1993 (67) E.L.T. 542 relied upon by the DR is distinguishable as in that case the benefit of Notification 242/76-Cus., dated 2-8-1976 was extended to refractory bricks as they were imported for replacement of the regenerator which had become an integral part of the glass furnace by virtue of advanced glass technology.
[Emphasis supplied].
5.1 In the case of Collector of Central Excise, Chandigarh v. A.B Tools Ltd. and M/s. Punjab Iron and Steel Pvt. Ltd., the Bench in Miscellaneous Order No. 73-74/92-NRB in January 1992, differed from the view expressed in the case of Mukund Iron and Steel Works Ltd. reported in 1990 (48) E.L.T. 552 that fire-bricks were excluded from Modvat benefit being in the nature of machines, and tools, etc. and referred the following issue to the Larger Bench of the Tribunal "whether in the facts and circumstances of the case, ramming mass can be treated as part of the machinery for denial of Modvat credit or it can be termed as an 'input' in terms of Rule 57A for eligibility of Modvat credit". The Larger Bench by its Final Order No. A/229-230/94-NRB, dated 23-2-1994 [reported in 1994 (71) E.L.T. 776 (Tri.)] followed the decision of the Hon'ble Calcutta High Court in the case of Singh Alloys.
6. Therefore, following the ratio of the Hon'ble Calcutta High Court, in the case of Singh Alloys and the Order No. A/229-230/94-NRB, dated 23-2-1994 of the Larger Bench of this Tribunal, we hold that Modvat credit is available on fire bricks and dead burnt magnesite. Accordingly we uphold the impugned order and reject the appeal of the Revenue.
Sd/-
(Jyoti Balasundaram) Member (J) Shiben K. Dhar, Member (T)
7. With due respect to Member (Judicial), I differ from the conclusion and write my order as under :-
7.1 The Hon'ble Calcutta High Court in the case of Singh Alloys & Steel Ltd. v. Assistant Collector of Central Excise reported in 1993 (66) E.L.T. 594 (Cal.) dealt with specifically the case of ramming mass, considering it to be a chemical. Citing the definition of excluded items under 57A like apparatus, appliances, equipment, machines/machinery, plant and tools, the Hon'ble Court held that none of these definitions would include the items like chemicals such as the items in question. The Hon'ble Court in para 19 of the judgment observed that "the items are chemicals and have been classified as such in the Tariff Act. Merely because chemicals are used for the machinery do not make the chemicals, machinery."
7.2 As to the nature of ramming mass, the Hon'ble Court observed that (para 7):
"It is the admitted case that these items are first charged into the furnace as fettling materials. The items dissolve and seal the crevices in the refractory walls of the furnace to prevent leaking of the liquid metal from the furnace and to reduce the erosion of the refractory lining of the furnace. The items lose their identity and are consumed in the process. Some part of the items remains in the liquid metal which forms the ingot and the balance forms part of the residue or slug."
8. Considering the characteristics of ramming mass, which is a chemical and classified as such, the Hon'ble Court observed that such an item could not be considered to fall under any of the excluded category in the explanation to Rule 57A.
8.2 While referring to Tribunal's orders in the case of Mukund Iron and Steel Works Ltd. v. Collector of Central Excise - 1990 (45) E.L.T. 84, the Hon'ble Court did not specifically set aside the findings in that order in regard to refractory bricks but only pointed out to the wrong approach adopted by the Tribunal in considering the matter of eligibility of Modvat of such items. The Hon'ble Court held that the proper approach was to first determine whether or not the item in question is input in relation to the final product and, if the answer is in [affirmative], to examine as to whether such an output is covered under any of the excluded category in explanation to Rule 57A. The exact characteristics of refractory bricks as such were not considered by the Hon'ble Court as was the case for ramming mass. In view of this matter, it cannot be held that ratio of Hon'ble Court's order in case of Singh Alloys and Steel Ltd. (supra) covers the case of refractory bricks also.
9. Ld. Advocate for the respondent submitted that these bricks are not part of the furnace. Quoting from the literature to which extensive reference is made 'Ingot Technology' has this to say Refractories for steelmaking : "From the point of view of the furnace user, refractories undoubtedly constitute one of the most important and vital parts of the furnace installation ...."
Internal page 5 of the paper book has this to say about Refractory Shapes 'In general, refractories are used in one of two forms as refractory brick and as granular refractory. Refractory brick is made in many special shapes and sizes and is vised in constructing furnace walls, hearths, furnace roofs, etc. Granular refractory material is visually temped in place and sintered or burned by the heat of the furnace, this forms a one-piece or monolithic refractory as distinguished from a jointed refractory formed by laying brick."
The literature again under the heading 'Construction' at page 6 contains the following reference: "However, in general the parts of the furnace lining are referred to as the bottom or hearth side wall, slag line, tap hole, roof, roof delta, smoke hole and ronner or spout. The bottom of hearth is the lining resting on the shell and extending up to the slag line level, a variable level extending several inches above and below the door sill height. The side wall starts immediately on the sides of the bottom and extends to the top of the shell. The roof covers the top of the shell and usually contains three centrally located electrode holes and a smoke hole."
9.3 Page 38 Annexure 4 of paper book refers to refractory as "Refractory is a raw material for electric arc furnace."
10. All these only indicate that refractory bricks are essential parts of furnace and are used in constructing the bottom, hearth side wall, slag line, tap hole, roof, roof delta, smoke hole and ronner or spout. Electric furnace cannot function without such protective coverings which become integral part of the furnace and it is not something external to it. In view of this it cannot be held that such bricks are not parts of furnace.
11. Ld. Advocate also submits that these bricks are too frequently replaced as they get worn out and constitute sizable expenditure. The machinery through constant use does get worn out and even parts are to be replaced; that by itself does not mean that what is replaced is not a part of machinery as such. Even if such bricks are used for maintenance of equipment, they would not be eligible to Modvat. It was held by the Tribunal in the case of Assistant Collector v. Evangelist Francies Almeida reported in 1991 (51) E.L.T. 295 that goods required for maintenance of structures equipment and machinery are not eligible input as they are used in the maintenance and repair of machinery. In case of Alembic Glass Industries Ltd. v. Collector of Customs reported in 1993 (67) E.L.T. 542 which held bricks as part of furnace, what is relevant consideration is whether refractory bricks constitute parts of furnace or furnace can function for the purpose for which it is worked out without such bricks. It is obvious that no furnace can be used unless it is lined both bottom side walls and roof with specially designed functions depending upon type of furnace involved. Once it functions it is the part of the furnace whether the furnace was designed for a particular type of construction material or otherwise. The refractories bricks are always chosen with reference to size of the furnace. For instance, where the conditions are severe, particularly on furnace of 35 tons capacity up to 200 tons and where ultra high-power operation and extensive oxygen blowing are used it is common to employ fusion cast blocks of chrome-magnesite around the slag-line ....' Page 5 of the Paper Book under the heading Requirements of a Refractory states that :-
"The qualifications that must be possessed by a particular refractory depend on the use for which it is intended. The following items are of importance.
Price. The cost of the refractory should be as low as possible. The important thing, however, is not the initial cost, but the cost per unit weight of material treated; one refractory material may cost more than another, but if it has a longer life, it may be cheaper in the long run to install it rather than a refractory with a lower initial cost. In the final analysis it is the over-all cost of the refractory that determines the choice for a particular installation.
Melting Point. The melting point of the refractory material must be high enough to prevent melting (or softening at operating temperatures)."
The literature then goes on to describe Doloma brick, alumina brick, fireclay brick, granular materials etc. to indicate the suitability of bricks with reference to the types of furnace. From this, it is clear these bricks constitute an essential part of the furnace without which furnace could not work.
12. The bricks are classified under Chapter 69 of Schedule to Central Excise Tariff Act, 1985 under Heading 69.01.00. The heading reads refractory ceramic goods such as bricks, blocks, tiles and similar refractory ceramic constructional goods. The bricks are therefore, constructional material; on the other hand, ramming mass which was held to be a chemical classified as chemical and such a chemical could not be covered under any of the excluded category under Rule 57A. This is not the case with refractory bricks.
12.2 Refractory bricks are certainly used in relation to the manufacture of final products but these are so used only as parts of furnace. If the furnace itself is an excluded input, a part of such furnace, without which furnace cannot function, cannot be considered as not excluded.
13. In view of this, I propose to allow the appeal of the Revenue and set aside the impugned order of Collector (Appeals) in so far as fire-bricks are concerned.
Sd/-
(Shiben K. Dhar)
Dated : 9-8-1994 Member (T)
14. In view of the difference between the two Members, the following point of difference is placed before the Hon'ble President for reference to third Member:
"Whether fire bricks are eligible for the benefit of the Modvat credit as held by Member 0) or form part of the furnace and hence excluded from Modvat coverage in terms of the explanation to Rule 57A of the Central Excise Rules, 1944. as held by Member (T)".
Sd/- Sd/-
(Shiben K. Dhar) (Jyoti Balasundaram)
Dated: 12-8-1994 Member (T)] Member (J)]
POINT OF DIFFERENCE
Lajja Ram, Member (T)
15. The point of difference referred to me is whether fire bricks are eligible for the benefit of the Modvat credit, as held by Member (Judicial), or form part of the furnace, and hence excluded from Modvat coverage in terms of the explanation to Rule 57A of the Central Excise Rules, 1944 (hereinafter referred to as the 'Rules'), as held by Member (Technical).
16. The matter was heard by me on 13-12-1994 when Dr. A.M. Singhvi, Senior Advocate with Shri C. Mukhopadhyay, Advocate appeared for the respondent-assessee. The appellant-Revenue was represented by Shri J.P. Singh, JDR.
17. Shri J.P. Singh, the Ld. JDR stated that the fire bricks were part of the furnace, and were used for lining of the furnace, after which they become integral part of the furnace. Furnace was an equipment. The fire bricks were in the nature of a material for the furnace, and no furnace could work without the fire bricks. He relied upon the Tribunal decision in the case of M.B. Smelters Pvt. Ltd. v. CCE Hyderabad - 1994 (52) ECR 33 (T), wherein it has been held that the magnesite bricks or powder, ramming mass or dead burnt magnesite, being protective refractory, were not eligible for Modvat. The Ld. JDR also relied upon the Tribunal's decision in the case of Shimoga Steels Ltd. v. CCE - 1993 (67) E.L.T. 666 (Tribunal), wherein it has been held that the Modvat credit was not admissible in respect of sodium silicate, ramming mass and tundish board, being materials used in relation to equipment (for lining the furnace) for manufacture of steel. He pleaded for acceptance of the order proposed by the Ld. Member (Technical).
18. In reply Dr. A.M. Singhvi, the Ld. Senior Advocate stated that the fire bricks were solidified dead burnt magnesite, and thus were consumable input - as were the ramming mass. Both had the same chemical composition. They are consumed in a heat cycle of four to six hours, and melt, and go with the steel, and imparts its properties to the final product. They are a revenue item and are not machinery or equipment. The Ld. Senior Advocate referred to the documentary evidence filed by the respondents, and pleaded that fire bricks were a raw material for the production of iron and steel. He submitted that the order proposed by the Member (Judicial) was correct, and that the order proposed by the Member (Technical) was erroneous. He relied upon the following decisions :-
(1) Singh Alloys and Steel Ltd. v. Asstt. Collector of Central Excise - 1993 (66) E.L.T. 594 Cal.
(2) Steel Authority of India Ltd. v. Collector of Customs -1989 (42) E.L.T. 89 (Tribunal)
19. In rejoinder Shri J.P. Singh, the Ld. JDR stated that the replacement of the fire bricks was not crucial, and mentioned that Air filter was also replaceable but was not an admissible input. He submitted that the product before the Hon'ble Calcutta High Court was the ramming mass which was in the nature of a chemical, while the goods under consideration in the present case are fire bricks, and that the decision of the Calcutta High Court in the case of Singh Alloys and Steel Ltd. (supra), is distinguishable.
20. I have very carefully considered the matter. M/s. Raipur Alloys and Steel Ltd., Raipur, were manufacturers of iron and steel, and articles of iron and steel, falling under Chapter 72 and Chapter 73 respectively of the Schedule to the Central Excise Tariff Act, 1985 (hereinafter referred to as the Tariff). They had two electric arc furnaces of 11/12 Mt. capacity each. As per Rule 57A read with Rule 57G of the Rules, they declared, among other, fire bricks as input for the manufacture of their final products - iron and steel. According to them their indirect inputs which included fire bricks, (furnace lining bricks, roof bricks, ladle lining bricks etc.), were consumables, and were being melted wholly or partially during the process, and were coming out of the furnace alongwith the liquid metal. They stated that "the fire bricks are used in relation to production of excisable goods like ingots and billets and during the course of manufacturing, the fire bricks used to melt alongwith liquid metal, and after about 100 to 120 heats, we have to take out remaining part of fire bricks in the furnaces and put a fresh lining for further processing. We are using fire bricks regularly as fast consumables as raw materials like ferro-alloys etc. Our basic lining brick has high aluminum magnesite and magnesite chrome contents which is coming out with the liquid metal during processing" (assessee's letter dated 26-6-1987 refers). The Assistant Collector of Central Excise, Raipur considered fire bricks as a consumable item. The Collector of Central Excise Indore, however was of the view that fire bricks were not consumable inputs and formed a part of machinery or equipment for producing the final products, and that the Modvat credit on them was not admissible. The Collector of Central Excise (Appeals) had rejected the appeal filed by the Assistant Collector of Central Excise, Raipur.
21. The respondents have contended that the fire bricks are consumables in the production of iron and steel, and are eligible input for the purposes of Rule 57A of the Rules. The Revenue has argued that the fire bricks are not consumable inputs in the manufacture of steel; they form part of the equipment for producing steel, and are excluded from the benefit of Modvat credit in terms of explanation 1(b) to Rule 57A of the Rules.
22. The provisions of Rule 57A of the Rules apply to the specified finished excisable goods. The purpose is allowing the credit of the specified duty paid on the goods used in or in relation to the manufacture (referred to as the 'inputs') of the said specified finished excisable goods. The credit so allowed is available for utilisation towards payment of the duty of excise leviable on the specified finished excisable goods (referred to above). It has been explained that the goods used in or in relation to the manufacture (referred to as the 'inputs') of the above-mentioned specified finished excisable goods will not include, among others, machines, machinery, plant, equipment, apparatus, tools or appliances vised for producing or processing of any goods or for bringing about any change in any substance in or in relation to the manufacture of the final products.
23. The principles of modern steel making in an over-simplified manner may be stated as under :
Iron-bearing materials containing principally iron oxides (iron ore, pellets, sinter, etc.) are reduced to molten iron (pig iron) in the blast furnace, using the carbon of coke as the reducing agent. In the process, the iron absorbs from 3.0 to 4.5 per cent of carbon. Iron containing 3.0 to 4.0 per cent of carbon can be used to make iron castings (cast iron) ... most modem steel contains considerably less than 1.0 per cent of carbon, and the excess carbon must be removed from the product of the blast furnace to convert it into steel.
The excess carbon is removed by controlled oxidation of mixtures of molten pig iron and melted iron and steel scrap in steelmaking furnaces to produce carbon steels of the desired carbon content. In this country, the principal steelmaking furnaces include the open-hearth furnace, basic-oxygen furnace and electric-arc furnace. Various elements - chromium, manganese, nickel, molybdenum, etc. - may be added singly or in combination to the molten steel during or after the carbon-removal process to produce alloy steels. All of the modern steelmaking processes produce molten (liquid) steel.
After the molten steel has attained the desired chemical composition in the steelmaking process, it is tapped (poured) from the furnace into a ladle from whence most steel is teemed (poured) ... usually ... rectangular, molds where it solidifies to form ingots. Most ingots, after being removed from the molds, are reheated to a proper uniform temperature and rolled (in some cases, forged) into shapes known as blooms, billets, and slabs which are referred to as semifinished steel: only a relatively small number are rolled or forged directly into finished forms. Increasing quantities of semifinished steel are being produced by pouring liquid steel into the top of open-bottomed molds in continuous-casting machines where it solidifies and is continuously withdrawn from the bottom of the molds in long lengths of the desired shapes. Blooms, slabs, and billets are referred to as semifinished steel because they form the starting material for the production by mechanical treatment (hot rolling, cold rolling, forging, extruding, drawing, etc.) of finished steel products that include bars, plates structural shapes, rails, wire, tabular products, and coated and uncoated sheet steel, all in the many forms required by users of steel. Many of these products require some form of heat treatment at the steel mill to give them the best properties for their intended use."
[Source: US Steel]
24. Furnaces are used to melt the metal. They have an enclosed chamber. There are different type of furnaces. A blast furnace is a huge cylinder made of steel and lined with heat resistant fire bricks. The furnace walls are lined internally with fire clay refractory bricks. The hottest part (hearth and bottom plate) has a carbon brick lining. A basic Oxygen furnace is a pear shaped steel vessel with an open top and heat resistant lining. In the open hearth furnace, the hearth is open directly to the flames that melt the charge. It has also a lining of fire bricks. Checker chambers in the open hearth furnace contain fire bricks arranged in a checkered pattern that provides many passages through which air and waste gases can flow. An electric arc furnace consists of a shallow steel cylinder lined with fire bricks. There are direct arc furnaces, indirect arc furnaces, induction furnaces, electric reduction furnaces, and there are electric furnaces of special designs also. The structural and mechanical parts of a modern electric arc furnace consists basically of a refractory lined shell and roof to contain the charge, and mechanisms to position the electrodes to maintain the arc for melting and refining, to tilt the furnace to tap and desilag, to remove the roof for top charging and to operate the doors of the shell.
25. Fire bricks are a variety or refractory (substance that is hard to melt) which is a non-metallic material or object that can withstand high temperatures without becoming soft. Refractories are used to line furnaces for melting metals and glass, in crucibles for inducing chemical reactions and for melting materials, as insulation in the walls of furnaces and kilns, and in other places where resistance to temperature and corrosion is required. A common refractory called fire bricks contains aluminium silicates and minor amounts of titanium and iron oxides. Other refractory substances include alumina magnesia, silica, zirconia, silicon carbide and graphite (Vol. 16 page 201 of the World Book Encyclopedia). The fire bricks are also used in tanks (chemical industry), rotary kiln (cement industry), pits, crucibles etc. Abovit 70% of the production of fire bricks is for iron and steel industry. In iron and steel industry they are the chief materials used in the construction of furnace, lining of ladles, hot metal mixers, retaining vessels as well as in the flues or stacks through which hot gases are conducted. In furnaces they are used in constructing furnace walls, hearths (bottom), furnace roof etc. They constitute one of the most important and vital parts of the furnace installation. They are used in a wide variety of forms, raw, fired in chemically bonded state etc. Refractories are required to withstand :
(1) All ranges of temperature up to 3200° F. (2) Sudden changes in temperature-"thermal shock."
(3) Stresses-mainly compressive, at both high and low temperatures.
(4) The action of stags, ranging from action ... character.
(5) The action of molten metals, always at high temperatures and capable of exerting great pressures and buoyant forces.
(6) The action of gases, including SO2, CO, CI CII, II2O, and volatile oxides and salts of metals even volatile metals. All are capable of penetrating and reacting with the brick. SOa may react with oxides in the brick to form easily-fused salts. CO penetrating fire clay brick, breaks down to C and CO2 in the presence of iron carbides, the carbon being deposited in the brick and causing its disintegration. Zinc in the vapour phase has a similar effect. At relatively low temperatures, steam and water vapor exert a slaking effect on dolomite and magnesite refractories. And nearly all refractories are apt to be subjected to, and adversely affected by, volatile iron and alkalies.
(7) The action of dust in gases, which may be fluxing or non-fluxing, and acid or basic.
(8) Impact and abrasive forces at both high and low temperatures, as those in the stack of a blast furnace.
At the same time a refractory is being subjected to one or more of the above conditions, it may be required to function as storehouse for heat, as in checkers; as a conductor of heat, as in the walls of coking chambers: or as an insulator.
[Source: US Steel] The main types of refractory goods are (1) Aluminous refractories based upon bauxite (sometimes mixed with clays), kyanite, sillimanite or andalusite (aluminium silicates) mixed with clays, or sintered alumina.
(2) Alumino-silicate refractories (e.g. based upon fire-clay with some chamottex or grog).
(3) Silica refractories (based upon sand, crushed quartz, flint, etc., and bonded with clay or lime).
(4) Magnesite refractories (based upon magnesite, giobertite, or dolomite); refractories based upon chromite or chromium oxide; chrome-magnesite refractories.
(5) Refractories based upon silicon carbide.
(6) Zirconium oxide or zirconium silicate refractories usually agglomerated with clay: refractories based upon beryllium oxide, thorium oxide, cerium oxide, etc. (7) Refractories based upon graphite or retort carbon usually agglomerated with pitch, tar or clay.
Refractory materials are used mainly in the construction of blast furnaces, coke ovens, petroleum cracking plant, glass and ceramic furnaces, and in the manufacture of pots, crucibles and other plant for the chemical and glass industries, etc. (Source : Sub-Chapter notes under Chapter 69 -
Page 902 of the Customs Co-operation Council Nomenclature - Explanatory Notes) In the Customs Co-operation Council Nomenclature Explanatory Notes under Sub-Chapter 1 of Chapter 69 it has been explained that the heat insulating Ceramics goods of Heading 69.01 are used as heat insulators in building, for the lagging of steam piping, in the construction of ovens, steam generating boilers and other industrial plants. Explanatory note under Heading No. 69.02 refers to the goods used in the construction of ovens, furnaces and other plant for the metallurgical, chemical, ceramic, glass industries etc. They are to be specially designed for the construction of plant or machinery. Notification No. 242 - Customs dated 2-8-1976 exempted refractory bricks of special shape or quality for use as component parts of industrial furnaces. In the documentary evidence filed by the respondents at page 5, it has been referred to that in general, refractories are used in one of two forms as refractory brick and as granular refractory. Refractory brick is made in many special shapes and sizes and is used in constructing furnace walls, hearths, furnace roofs etc.
26. From the above narration and from the technical information on record, the following facts and conclusions emerge :-
(1) Fire bricks are materials of construction. They are heat insulating construction material for the furnace.
(2) Their utilisation is in the manufacturing apparatus-the furnace.
(3) They are neither the raw material nor the input for the manufacture of steel. They are not a part of the molten metal bath. They are not a part of the burden or the charge.
(4) Their effect on slag-metal by allowing removal of undesirable phosphorous and sulphur from the melt to the slag, their corrosion as a consequence of thermodynamics of chemical reactions, which are encountered in steel making, or their effect on steel quality, do not make them the raw-material or input of the metal-melt.
(5) After they have lived their life for the particular furnace, worn refractories are replaced by new refractories.
27. Various elements are used in fire bricks keeping in view the heavy and severe duty imposed on the different parts of the furnace, thermal chemical and mechanical shocks and stress in different stages of steel making, avoidance of contamination of the product, to check their own corrosion and consequential damage to the furnace and to ensure that the quality of steel is not damaged by contamination. These qualities are to make them suitable for the particular manufacturing apparatus/equipment. At the present stage of our technology furnace is not usable without the fire bricks. Once fire bricks are used for the furnace to make the furnace usable, they are put in the use of the furnace, in the sense minuted by the Hon'ble Supreme Court in the case of Tata Engineering and Locomotive Company Ltd. v. State of Bihar - 1994 (74) E.L.T. 193 (S.C.). In that case the Hon'ble Supreme Court had observed that the ordinary common sense understanding of the word 'raw-material' is that it is something from which another new or distinct commodity can be produced. They have added that when it is used in a taxing statute it may have related meaning depending on the context in which it has been used. The main emphasis of the Hon'ble Supreme Court is on the use of the raw material in the manufacture of goods. In the case before them, they held that the concessional rate of tax was applicable to that raw material that is put in the manufacture or use of the goods. In the present case, it cannot be said that the fire bricks are put in the manufacture of iron and steel. In fact they are put in the use of the furnace and not in the manufacture of iron and steel. It could not be said in any sense -widest of the wide - that fire bricks are inputs in or in relation to the manufacture of steel. They are not put in the manufacture or use of the steel. In para 4 of the above judgment the Hon'ble Supreme Court have held as under :-
* * * * * * * * *
28. In the case of Collector of C. Ex. v. Ballarpur Industries Ltd. -1989 (43) E.L.T. 804 (SC), the Hon'ble Supreme Court had distinguished between the manufacturing process, and the manufacturing apparatus. They had observed that the relevant test was not the presence of the raw material in the end product but the dependence of the end product for its essential presence at the delivery end of the process. The ingredients go into the making of the end product in the sense that without its absence, the presence of the end product as such is rendered impossible. The Hon'ble Supreme Court emphasised that this quality should coalesce with the requirement that its utilisation is in the manufacturing process as distinct from the manufacturing apparatus, (emphasis supplied).
In the case of J.K. Cotton Spinning and Weaving Mills Co. v. Sales Tax Officer, Kanpur (1965) 1 SCR 900, the Hon'ble Supreme Court were dealing with a Sales Tax entry which was very wide. It covered raw materials, processing materials, machinery, plant, equipment, tools, stores, spare parts, accessories, fuel and lubricants with regard to the manufacture of tiles for sale, the Hon'ble Supreme Court held that "building materials used as raw materials for construction of "plant" cannot be said to be used as plant in the manufacture of goods.
29. Explanation under Rule 57A of the Rules provide for certain inclusions and certain exclusions for the purposes of that rule. This explanation does not necessarily establish that the 'inclusions' were otherwise excluded, or the 'exclusions' were otherwise included in the main provision of the Rule. The explanation only reflects the intention of the legislature to extend or to restrict the coverage of Modvat credit in certain critical areas. The inclusions or the exclusions are mainly in respect of certain groups or group of materials. In the case of Day Pack Systems Pvt Ltd. v. Union of India - 1988 (36) E.L.T. 201 (SC) the Hon'ble Supreme Court had observed that "it is well settled that the word 'includes' is an inclusive definition and expands the meaning. In the case of Mahalakshmi Oil Mills v. State of Andhra Pradesh -1988 (38) E.L.T. 714 (S.C.) in para 11 the Hon'ble Supreme Court had observed as under :-
* * * * * * * * * As with inclusions so with the exclusions, the terms apparatus, equipment, plant etc. had to be given a wider meaning. In the case of Krishi Utpadan Mandi Samiti v. Shanker Industries -1993 AIR SCW 762, the Supreme Court in para 9 of the judgment had observed as under :-
"where the legislature uses the words 'means' and 'includes', such definition is to be given a wider meaning and is not exhaustive or restricted to the items contained or included in such definition."
30. Fire bricks are not consumables. Consumable is one that can be consumed, that is used up, wasted away, The manufacturer of the iron and steel does not consume the fire bricks to convert them into iron and steel or to bring into existence different goods (refer Supreme Court decision in the cases of Ganesh Trading Company v. State of Haryana - AIR 1974 SC 1362, and Babu Ram Jagdish Kumar and Co. v. State of Punjab - AIR 1979 SC 1475. They are not raw material for the production of iron and steel. The furnace in which they are used is not a semi-finished goods. The furnace fixed with fire bricks do not undergo any further process of production. They are used as equipment and are in itself not transformed into any goods. The fire bricks, and the furnace in which they are used, are not consumed. The fire bricks are fixed in the furnace which is an equipment for the production of iron and steel. No goods are produced out of fire bricks. There is no direct productive process between the fire bricks and the iron and steel. As per documentary evidence of the respondents at page 21, it has been mentioned that refractory is designed as a protective barrier between the furnace charge and the roof and shell. Paddy is consumed when rice is produced from it by carrying out the process of dehusking at the mills; the miller who converts wheat into flour, and the baker who utilises the flour to manufacture bread out of it consume wheat and flour respectively in the course of their business (refer Supreme Court decision in the case of State of Karnataka v. Raghurama Shetty - AIR 1981 SC 1206. The fire bricks do not lose their identity. Even when replaced they are worn refractories. They do not get consumed, and in their place no new goods/commodity emerge. Fire bricks are not consumed for producing iron and steel. No commodity as such is obtained from fire bricks. In fact no goods as such emerge out of the fire bricks (refer to Supreme Court's decision in the case of Rajasthan Roller Flour Mills Association v. State of Rajasthan -1993 AIR SCW 3118). In the case of CC v. Kidwai Memorial Institute of Oncology - 1991 (56) E.L.T. 234 (Tri.), the Tribunal had held that caesium pellets, a radio-active material enclosed in a stainless steel container which totally covers glass activated caesium leads, when used in selection machine for treatment of cancer, could not properly be regarded as consumable items but as component parts or spare parts of accessories.
31. Fire bricks are obtained by the firing, after shaping of siliceous fossil meals or other similar siliceous earths (e.g. Kieselghur tripolite etc.) or of silica obtained by the incineration of certain vegetable products (e.g. rice balls ash). These materials are usually mixed with binders (such as clay or magnesia) and sometimes with other substances (e.g. asbestos, having sawdust, coal dust etc.) (refer CCCN Explanatory Notes sub-chapter 1 of Chapter 69). The fire bricks and their constituent materials are commercially known differently. They are not just a form of their constituent materials. They cannot be converted back to their constituent materials as was the case of Sugar and Patasas etc. in the case of State of Gujarat v. Sakarwala Brothers -1967 (19) STC 24). They could not be put to the same use as their constituent materials, or vice versa. In this case there is no relevancy of the goods called ramming mass. In the publication of US Steel, there is a reference to Ramming mass as under :-
"Special granular refractories are used principally for the basic ramming and patching materials which have been introduced since 1939. These are carefully-sized, chemically-bonded preparations composed of dead-burned magnesites or magnesia-dolomite mixtures. The latter generally contain a minimum of 60 per cent MgO, the balance being so proportioned between lime and silica as to form a predominance of dicalcium silicate when clinkered in a rotary kiln. To prevent the dusting (spontaneous transformation to a powder) of dicalcium silicate cooling, it is necessary to prevent its sudden inversion from the beta to the gamma form. This is accomplished by stabilizing with small amounts of mineralizers such as Cr.O., B.O. and phosphates or combinations of these. These special ramming mixtures are now widely used for open-hearth-bottom making, as they are quicker to install, provide more accurate contours, and generally are more uniform in composition, than burned-in magnesite bottoms. For new-bottom installations, the higher-purity sea-water-based materials containing over 90 per cent of MgO are usually used the preparations having lower MgO content be employed for resurfacing and patching. However, in recent years, specially high-fired, high-purity, sized dolomite has been used for complete open-hearth bottoms, which are installed by vibratory consolidation of a dry mix. These have performed well and, because of lower cost, may be used increasingly."
Its direct are electric furnace application is shown at page 551 as under
FIG. 18-2. Schematic cross-section of a Heroult electric-arc furnace with a dished bottom shell and stadium-type sub-hearth construction, indicating typical refractories employed in (left) an acid lining and (right) a basic lining. Although only two electrodes are shown in this section, furnaces of this type (which operate on three-phase current) have three electrodes. (See Figure 18-6 for inverted-arch-type sub-hearth construction applied to furnaces with sheas having dished bottoms.) [Courtesy. Harbison-Walker Refractories Company.) It appears from the decision of the Calcutta High Court in the case of Singh Alloys & Steel Ltd. v. Asstt. Collector of Central Excise -1993 (66) E.L.T. 594 (CaL), on which the respondents have placed reliance, that the product ramming mass with which the Hon'ble High Court were concerned was a chemical, classifiable under Heading 38.16 of the Tariff. Chapter 38 covered miscellaneous chemical products, Heading 38.16 covered refractories cement mortars, concretes, similar composition other than products of Heading No. 38.01. The Heading 38.01 covered artificial graphite; Colloidal or Semi-colloidal Graphite; preparations based on Graphite or other carbon in the form of pastes, blocks, plates or other semi-manufactures. They were said to be charged into the furnace, used when ingots were manufactured, lost their identity and were said to be consumed in the process. In this case there is no concern with the chemicals but with a specific identifiable and separately classifiable goods obtained by the firing after shaping of specific materials and mixed with binders. Thus the argument of the respondents that the product called ramming mass, and the goods fire bricks should be given the same treatment, has no force. I agree with the Ld. Member (Technical) that "it cannot be held that ratio of Hon'ble Court's order in case of Singh Alloys and Steel Ltd. (supra) covers the case of refractory brick also."
32. In the case of Andhra Pradesh Paper Mills Ltd. v. CCE - 1990 (50) E.L.T. 252 (Tribunal), the Tribunal had held as under :-
"The machineries, equipment and apparatus by themselves have been precluded from the benefit of the MODVAT credit. Cascading effect of the duty paid on the machinery used in or in relation to the manufacture of the finished goods is not to be mitigated and as a corollory thereto the parts which are used in these machineries to make them functional also are not entitled to the benefit of the MODVAT scheme. These parts which are used as replacement from time to time have to be held to have been used in relation to the machines themselves and not in relation to the manufacture of the goods. In the scheme of MODVAT if the parts of the machines are included, there is no reason why the lighting equipment and other structural fittings which are used in the factory in which the goods are produced would not have to be allowed the benefit of the input duty relief under the MODVAT scheme."
In the case of Shhnoga Steels Ltd. v. CCE - 1993 (67) E.L.T. 666 (Tribunal), the Tribunal had held that Tundish board used for the protection of the refractory bricks as a lining material for the furnace was a part of the furnace and would be taken to have been used in relation to the equipment for the manufacture of steel and for that reason benefit of Modvat credit could not be allowed thereon. In the case of Associated Cement Company Ltd. v. CCE - 1991 (55) E.L.T. 415 (Tribunal), the Tribunal had held that the benefit of Modvat credit could not be extended to goods in the nature of machines, appliances, tools, equipment etc. as also goods used in relation to the apparatus as distinct from the goods used in relation to the manufacture.
33. The Refractory bricks in the case of Steel Authority of India Ltd. v. CC 1989 (42) E.L.T. 89 (Tribunal) were imported and had to be assessed as such. These bricks were made of refractory material of special quality used in the construction of teeming ladle of open hearth furnace. The classification of the imported bricks was decided by the Tribunal on the basis of the explanatory notes under relevant heading of the CCCN. Thus the facts in that case (as contained in para 2 or the Tribunal's decision), were different.
34. The Ld. Member (Technical) has discusse the submissions made on behalf of the respondents and had discussed the case law cited by both the sides. Mainly basing his conclusions on the information as contained in the paper book, he has come to a decision that the fire bricks are excluded from Modvat coverage in terms of the explanation to Rule 57A of the Rules. In the light of the above discussion and taking all the relevant considerations into account, I agree with the order proposed by the Ld. Member (Technical), allow the appeal of the Revenue and set aside the impugned order of the Collector of Central Excise (Appeals), New Delhi, in so far as the fire bricks are concerned.
Sd/-
(Lajja Ram)
Dated : 16-2-1995 Member (T)
ORDER
35. In view of the majority opinion, the impugned order of the Collector of Central Excise (Appeals), New Delhi relating to fire bricks is set aside and the appeal of the Revenue on this issue is allowed. The impugned order extending the modvat credit on dead burnt magnesite is upheld and the Revenue's appeal on this aspect is rejected. The appeal is disposed of in the above terms.