Customs, Excise and Gold Tribunal - Tamil Nadu
Collector Of Central Excise vs Seshasayee Paper Boards Ltd. on 22 November, 1991
Equivalent citations: 1992(61)ELT304(TRI-CHENNAI)
ORDER V.P. Gulati, Member (T)
1. This appeal is filed by the Revenue against the order of the Collector of Central Excise (Appeals), Madras. The Collector (Appeals) has allowed the benefit of MODVAT Credit to the Respondent's paper making Unit in respect bf the following items holding that the same are used in or in relation to the manufacture of paper:
(a) Hydrochloric Acid
(b) Sulphuric Acid
(c) Hydrazene 100%
(d) Sodium Sulphate.
2. The learned Collector (Appeals) has held as under in his order:
"I find from the above that it is not clear as to how it can be said that Hydrochloric acid is used for maintenance of machinery. If Hydrochloric acid is used for demineralisation of water which is to be turned into steam in part and to be utilised for spraying on the pulp, in the case, it cannot be called that demineralised water obtaining which hydrochloric acid is used, that such acid is used as a part of plant and machinery or for their maintenance. Therefore, there being no doubt of the use of Hydrochloric acid, in and in relation to manufacture of the final products, MODVAT Credit in respect of hydrochloric acid is allowed. So far as Sulphuric acid is concerned, the same is also used for the same purpose as that of the Hydrochloric acid in water treatment. Therefore, the Assistant Collector has rejected the inputs credit for sulphuric acid also. For the reasons stated by me above, sulphuric acid is also covered by the word inputs and the appellants are eligible for MODVAT Credit for the same.
For items Hydrozinc, sodium sulphate, sodium hexameta phosphate and trisodium phosphate, the Assistant Collector has held that the assessee has pointed out that these chemicals are used in water treatment plant for purification of water out of which Hydrazene 100% and sodium sulphate are used as oxygen scavenger (deoxidant) to carry the oxygen in the water treatment plant. Sodium Hexa-meta Phosphate and Tri-sodium Phosphate are used for the prevention of scale formation in boilers which is nothing but a function to keep the boiler in the proper working condition and it is clear that it is used for the maintenance of the boiler. So it is seen from these that all these items are not eligible for availing the MODVAT Credit.
After carefully considering the above findings of the Assistant Collector, I find that the chemicals are required for water treatment plant for purification of water. This fact is admitted by the Assistant Collector. Hydrazene 100% and sodium sulphate are used as deoxidant to carry oxygen in the water treatment plant. Therefore, these two items cannot be part of the machinery and maintenance of the machinery".
3. In the grounds of appeal, the Appellant-Collector has urged as under :
"Collector of Central Excise (Appeals), Madras held that the Hydrochloric Acid used for demineralisation of water cannot be called as a part of plant & machinery or for their maintenance. He has however, held that the same Hydrochloric acid is eligible for MODVAT Credit inasmuch as there is no doubt of the use of Hydrochloric acid in or in relation to manufacture of the final products. In respect of sulphuric Acid, he has held that it is also used for the same purpose as Hydrochloric acid in water treatment and hence eligible for MODVAT Credit.
Further the Collector (Appeals) has held that Hydrazene 100% and sodium sulphate cannot be part of machinery or maintenance of machinery as such but are used as de-oxidant to carry oxygen in the water treatment plant and hence they are eligible for MODVAT Credit.
As per Rule 57A of Central Excise Rules, 1944 read with Notification 177/86-C.E., dated 1-3-1986 MODVAT Credit is available only on the duty paid inputs which are used in or in relation to the manufacture of the final products.
In this case, the Collector of Central Excise (Appeals), has allowed the appeal in respect of inputs viz. (1) Hydrochloric Acid (2) Sulphuric Acid and (3) Hydrazene 100% holding that these inputs are eligible for MODVAT Credit. This is not correct for the reasons stated below:
(1) Hydrochloric acid. Hydrochloric acid is used for regeneration of the resins used in the Ion Exchanges of demineralisation plant and at the water treatment plant it is used to remove unwanted ions. The demineralised water is used only in the manufacture of steam which is used for drying of paper and not in the manufacture of paper. Further, the abovesaid is a final product falling under Chapter No. 28 and the same is exempted from payment of Central Excise duty under Notification No. 195/86-C.E., dated 13-3-1986 as amended.
In view of above, it is clear that the Hydrochloric acid is used only in the manufacture of steam and not used in or in relation to the manufacture of paper as per Rule 57A of C.E.R., 1944. Hence Hydrochloric acid is not eligible for MODVAT Credit.
Further Hydrochloric Acid is used for recouping the original strength of the resin in the water treatment plant and demineralisation plant. This resin becomes a part of machinery. As per Rule 57A of C.E.R., 1944 plant and machinery are not eligible for MODVAT Credit.
(2) Sulphuric Acid. Sulphuric acid is also used for the same purpose as Hydrochloric acid in water treatment plant. Applying the ratio of the grounds of appeal Hydrochloric Acid, it is submitted that the Sulphuric Acid used in the manufacture of steam and used in the water treatment plant is not eligible for MODVAT Credit as per Rule 57A of C.E.R., 1944.
(3) Hydrazene 100%. Hydrazene 100% is used as oxygen scavenger (de-oxidant) to carry the oxygen in the boiler water treatment plant. From the above it is clear that Hydrazene 100% is only used for the maintenance of boiler plant and not used in or in relation to the manufacture...".
4. We observe that the issue with regard to the use of Hydrochloric Acid and other items which are used in the paper making Unit has been considered by the Tribunal in the case of Andhra Pradesh Paper Mills Ltd. v. Collector of Central Excise, reported in 1990 (50) E.L.T. 252 in the light of the judgment of the Hon'ble Supreme Court in the case of J.K. Cotton Spg. and Wvg. Mills Co. Ltd. v. Sales Tax Officer, Kanpur (1985) 16 S.T.C. 563 (SC) and also in the case of C.C.E., Calcutta-II v. Eastern Paper Industries Limited, reported in 1989 (43) E.L.T. 201 (SC) wherein the Hon'ble Supreme Court held that so long as it can be shown that the material used as inputs have a nexus with the process which is integrally connected with the ultimate production of goods till the same are fit for being put in the marketing stream and such process is so integrally connected with ultimate production of goods that it would be commercially inexpedient to produce the finished goods without that process, all such inputs would get the benefit of credit of duty. In that case the materials used for softening of water were held to be eligible for MODVAT Credit. We have held that Hydrochloric Acid which is used for cleaning of wire mesh would not be eligible for the benefit of MODVAT Credit. At the same time we have held that the process which is in the nature of heat treatment of water can be taken to be process in or in relation to the manufacture of paper and the inputs used therein would be eligible for the benefit of MODVAT Credit even when the treated materials are used in the manufacturing stream of the finished goods either directly or by further process like generation of steam from water. In the present case we find that use of the Hydrochloric Acid is for demineralisation of water which has turned into steam. Specific use of Hydrochloric Acid resulted in the treated water fit for generation of steam after demineralisation of the same. This treatment has been done at a stage anterior to the Start of the manufacturing process for generation of steam and its use therefore can be taken to be for treatment of water for making the water ready for use in the process of manufacture of paper. In the case of Andhra Pradesh Paper Mills Ltd. v. C.C.E., reported in 1990 (50) E.L.T. 252, this Bench of the Tribunal has held as under :
"It is thus seen that the Hon'ble Supreme Court has held that so long as it can be shown that the materials used as inputs have a nexus with the process which is integrally connected with the ultimate production of goods till the same are fit for being put in the marketing stream and such process is so integrally connected with ultimate production of goods that it would be commercially inexpedient to produce the finished goods without that process, all such inputs would get the benefit of credit of duty. It is observed that the stress is on the process which are integrally connected with the production of the goods. Therefore, for the items to pass the test of eligibility to the benefit of the MODVAT Credit will be such that they participate in the process of manufacture without which the end product cannot be produced. In the present case, in the case of chemicals used, the learned S.D.R. fairly concedes that so far as softening of water is concerned, the same is a process which is for the manufacture of paper and softening of water is a requirement for the manufacture of paper. He has thus conceded that Soda ash used in this process would also be eligible for the benefit of MODVAT Credit. In regard to the other chemicals the position is, however, different. Hydrochloric acid is used for cleaning of the wire mesh as and when the same is found to have been clogged. The question is whether this cleaning operation can be considered to be a process of manufacture. Admittedly it is a process of maintenance of the wire mesh to keep it in the desired condition. Therefore, it cannot be said to have been used in the process of manufacture of paper. However, a point can be made that the same is used in relation to the manufacture of paper. The expression "used in relation to the manufacture" of paper no doubt has a wider meaning than the words "in the manufacture", in the context of the credit scheme and, therefore, it can be pleaded that Hydrochloric acid has been used in relation to the manufacture of paper. The expression "in relation to" has to be read in the context of the manufacturing process of the finished goods covered under the MODVAT Scheme. There may be processes which are preparatory in nature and anterior to the start of the manufacturing stream of the finished product but which have to be essentially carried out before the actual manufacturing process of the goods can start or these may be related to the preparing of material which have ultimately to go into the manufacturing stream or in preparing of certain materials which directly or indirectly participate in the manufacturing process in a manner that these help in the process of manufacture to be carried a step further. The inputs used in these process of manufacture of the products which are in turn used in the manufacturing stream of the finished product can be taken to have been used in the manufacture of the or in relation to the manufacture of finished product. Generation of steam which ultimately participate in the manufacturing is one such item. The other may be pre-treatment of the raw material which go into the manufacturing stream or the materials which may be used for making the end product ready or marketing. The use of the materials has to be such that they carry by their participation, in the manufacturing stream the process of manufacture a step further."
5. Therefore, following the ratio of the judgment of the Hon'ble Supreme Court and of this Tribunal cited supra, we hold that both Hydrochloric and Sulphuric Acid would be eligible for the benefit of MODVAT Credit, as these are used for treatment of water as seen from the order of the lower appellate authority. So far as Hydrazene 100% is concerned, it is also used for treatment of water. Its use is for the generation of steam which is used in the manufacturing process and we hold that Hydrazene 100% is also eligible for the benefit of MOD VAT Credit. In view of above, we find no merits in the appeal of the Revenue and therefore we reject the same.