Karnataka High Court
M/S. Escorts Limited, Yelahanka, ... vs Collector Of Central Excise, Bangalore on 1 December, 1999
Equivalent citations: 2000(72)ECC75, 2000ECR436(KARNATAKA), 2000(120)ELT75(KAR), 2000(3)KARLJ356
ORDER
1. The Customs, Excise and Gold (Control) Appellate Tribunal has referred the following questions arising out of its order dated 24-5-1993.--
"(1) Whether on the facts and in the circumstances of the case the Appellate Tribunal is right in law in holding that the applicant are not eligible to MODVAT credit in respect of Ramming Mass, Fibreglass and filter mesh used in or in relation to the manufacture of pistons on the ground that they are covered under proviso to Rule 57-A of the Central Excise Rules, 1944.
(2) Whether on the facts and in the circumstances of the case the Appellate Tribunal is right in law in rejecting the MODVAT credit on rejected pistons which are recycled in the manufacture of pistons".
2. The facts of the case are that the assessee claimed benefit of MODVAT credit in respect of ramming mass. The Tribunal found that for an item to pass the test of eligibility to the benefit of the MODVAT credit it will be seen that they participate in the process of manufacture without which the end product cannot he produced. In processed materials which are used either in the preparatory stage for getting the materials ready for manufacture or which are used to render the finished product marketable would be eligible for the benefit of MODVAT credit. This would include materials used in relation to the manufacture of the in-process materials which ultimately go into the manufacturing stream. In view of the consistent view taken by majority of the Benches, it was held that MODVAT credit for ramming mass cannot be allowed. In respect of filter mesh it was observed that, Fibreglass filter mesh is primarily used to remove the oxide inclusions from the molten alloy melts. Unless this is done, the inclusions would get into the castings and render it unutilisable. The filter mesh has a resin coating. This resin becomes a part of the finished product. During the piston blank casting manufacture the aluminium alloy enters the outer mould through the filter mesh. The size of mesh opening is designed in such a way that it permits filtering of the inclusion while at the same time ensuring that the optimum rate of filling of the mould is not affected. After the casting is solidified and is taken out, the fettling operations are carried out and the filter mesh used remains a part of the riser which is remelted. Thus the filter mesh becomes a molten metal charge which is used for making finished part. One piece of filter mesh is used per casting. Thus, this is an input used in the manufacture of the finished product.
3. Learned Counsel for the assessee submitted that in accordance with the provisions of Rule 57-B of the Central Excise Rules, 1944 have to be interpreted so as to advance the object of benefit of MODVAT in respect of inputs and cannot be restricted to components of the raw materials of the finished product which has gone into production of final product. It is submitted that the word "in relation to the manufacture" has extended the meaning of input and therefore, any item which is used as an input in relation to the manufacture is eligible for MODVAT. Provision of Rule 57-B are as under:
"Provided that the Central Government may specify the goods or classes of goods in respect of which the credit of specified duty may be restricted.
Explanation.--For the purposes of this rule, "inputs" includes--
(a) inputs which are manufactured and used within the factory of production, in or in relation to, the manufacture of final products,
(b) paints and packaging materials,
(c) inputs used as fuel,
(d) inputs used for generation of electricity, used within the factory of production for manufacture of final products or for any other purpose, and
(e) accessories of the final product cleared along with such final product, the value of which is included in the assessable value of the final product, but does not include--
(i) machines, machinery, plant, equipment, apparatus, tools, appliances or capital goods as defined in Rule 57-Q used 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;
(ii) packaging materials in respect of which any exemption to the extent of the duty of excise payable on the value of the packaging materials is being availed of for packaging any final products;
(iii) packaging materials or containers, the cost of which is not included in the assessable value of the final products under Section 4 of the Act, and (iv) crates and glass bottles used for aerated waters".
It is submitted that the Ramming Mass is a chemical which is used inside the furnace from which the final product is made and fibreglass filter mesh is a resin. It does not fall under 57-A. Reliance is placed on the judgment given in the case of Ponds (India) Limited v Collector of Central Excise, where the input for which grading was placed for plastic granules which are used for making container and it was held that the benefit under Rule 57-A is available. Reliance in this case was made on the decision given in Collector of Central Excise, Calcutta-II v M/s. Eas-tend Paper Industries Limited, where it was observed:
"As the Act does not define goods, the legislature must be taken to have used that word in its ordinary dictionary meaning. The dictionary meaning of the expression is that to become 'goods' it must be something which can ordinarily come to the market to be bought and sold and is known to the market as such. The Tribunal found, and there was material for the Tribunal to do so, that the market in which articles in question were sold were paper packed and wrapped in paper. Therefore, anything that enters into and forms part of that process must be deemed to be raw material or component part of the end-product and must be deemed to have been used in completion or manufacture of end-product".
It is also submitted that the explanation to Rule 57-B is only inclusive definition of the term input. Reliance is placed on the judgment of the Apex Court in State of Bombay and Others v Hospital Mazdoor Sabha and Others, where it was observed that, "It is obvious that the words used in an inclusive definition denote extension and cannot be treated as restricted in any sense. Where we are dealing with an inclusive definition, it would be inappropriate to put a restrictive interpretation upon terms of wider denotation".
The decision of the Calcutta High Court in Singh Alloys and Steel Limited v Assistant Collector of Central Excise, is also referred, where the phrase 'in relation to' was considered by way of wider connotation. Reliance is also placed on the judgment given in the case of Collector of Central Excise v Tata Engineering and Locomotive Company Limited , where also the benefit of MODVAT in respect of P.B. wire-mesh and industrial cloth used in the manufacture of paper was given.
4. On behalf of the Department it is submitted that the legislature has contemplated the benefit of MODVAT in respect of components and raw materials and not the items which are used in the manufacture of the final products.
5. We have considered over the matter. From the perusal of the provisions of Rule 57-B it can be said that it is not only the input of those goods which are used as mesh from which final product is made. But input of those items which are in relation to the manufacture of the final product is also eligible for MODVAT benefit. The rule making authority have used two phrases.--
(1) goods used in or in relation to the manufacture. If either of these items have been used from which final product is the resultant then the benefit of MODVAT can be claimed. The word "in relation to" is further clear from the explanation which has been given where it is mentioned that for the purpose of this rule input goods which are manufactured and used within the factory of production or in relation to the manufacture of final product. The word used refers to other items from which the manufacturing process is carried on and is in the aid of the word "in relation to the manufacture of final product". The exclusion is only of the 5 items which are mentioned therein. Machines, machinery, plant, equipment, apparatus, tools, appliances or capital goods used for producing or processing of any goods or bringing about any change in any substance in or in relation to the manufacture of final product have been excluded. Whenever the exclusion clause is to be restricted only to the word used therein, Rule 57-B will include even the items which are used in the manufacture of the product. The word 'in relation to' therefore, has to be given a wider meaning. The two items for which we have to consider as to whether they are eligible for the MODVAT credit have been explained by the assessee as under:
"(1) Fibreglass Filter Mesh:
Fibreglass filter mesh is primarily used to remove the oxide inclusions from the molten alloy melts. Unless this is done the inclusions would get into the casting and render it unutilisable. The filter mesh has a resin coating. This resin becomes a part of the finished product. During piston blank casting manufacture, the aluminium alloy enters the outer mould through the filter mesh. The size of the mesh opening is designed in such a way that it permits filtering of the inclusions while at the same time ensuring that the optimum rate of filling of the mould is not affected. After the casting is solidified and is taken out, the fettling operations are carried out. The filter mesh used remains as a part of the runner and riser which is remelted. Thus the filter mesh becomes a molten metal charge which is used for making final product.
2. Ramming Mass (Dediolit 20):
It is a high alumina refractory mass used for lining Induction Furnaces for melting and alloying of aluminium which is for manufacture of pistons. This ramming mass which conies in the form of powder is mixed with water, rammed and sintered in Induction Furnace to provide an insulative and workable crucible surface. This material is being imported presently because of nonavailability of equivalent indigenous material".
6. From the evidence which has come on record it is clear that the items are chemical and resin and therefore cannot be considered to be the items falling under clause (b)(1) of explanation to Rule 57-B. In these circumstances we are of the view that the Tribunal was not right in law in holding that the applicant are not eligible to MODVAT credit in respect of Ramming Mass, Fibreglass filter mesh used in or in relation to the manufacture of pistons on the ground that they are covered under proviso to Rule 57-B of the Central Excise Rules, 1944.
7. The reference is accordingly answered in favour of the assessee and against the revenue.