Customs, Excise and Gold Tribunal - Delhi
Rock Drill (India) vs Collector Of Central Excise on 15 February, 1993
Equivalent citations: 1993(48)ECR320(TRI.-DELHI)
ORDER Lajja Ram, Member (T)
1. This is an appeal against the Order-in-Appeal No. 64-CE/JPR/89, passed by the Collector of Central Excise (Appeals), New Delhi, under C. No. 207-CE/Appl/JPR/88, dated 5.4.1989, against M/s. Rockdrill (India), Jodhpur.
2. The point for consideration before us in this appeal is the admissibility of modvat credit under Rule 57A of the Central Excise Rules, 1944, (hereinafter referred to as the 'rules') in respect of graphite rods, converted into graphite moulds in the factory of production and used in sintering process for the manufacture of diamond drilling bits.
3. M/s. Rockdrill (India) Jodhpur (hereinafter referred to as the 'party' or the 'appellants') were engaged in the manufacture of diamond drilling bits, falling under heading No. 82.07 of the Schedule to the Central Excise Tariff Act, 1985 (hereinafter referred to as the Tariff). Diamond drilling bits were manufactured by the appellants through the process of sintering (to coalesce under heat without liquefaction), in this case, heating of different metals and fixation of diamonds. They were bringing graphite rods (falling under heading No. 38.01 of the Tariff), from outside, on payment of duty. These graphite rods were converted into graphite moulds, depending upon the specific shape and size of the diamond drilling bits to be produced. These processed graphite moulds were put into furnace at a high temperature of 2100°F, for transfer of carbide powder and diamonds on to the steel shanks (a long handled ladle for molten metal).
4. The party had declared graphite rods as one of the inputs used in the manufacture of diamond drilling bits, under Rule 57G of the. rules, and availed of the credit of duty paid thereon.
5. The Assistant Collector, Central Excise, Jodhpur, while adjudicating the Show Cause Notice dated 8.3.1988 (covering the period from 5.8.1986 to 14.11.1987), decided that the appellants were not entitled to avail credit in respect of graphite rods as they were used in the manufacture of graphite-moulds, and that graphite moulds were being used as appliance. He held that graphite rods could not be treated more than part of appliances, and at the most they could be treated as inputs in relation to manufacture of graphite-moulds but not in relation to manufacture of diamond drilling bits.
6. On appeal, the Collector, Central Excise (Appeals) New Delhi observed that graphite rods after being cut and machined are only applied in the furnace where sintering process is carried on, and thus the goods in question fall in the category of 'material' which are put on the manufacturing machine to perform a certain function in the process of manufacture, and hence fitted in the definition of apparatus/appliances. She upheld the finding of the Assistant Collector, Central Excise, Jodhpur, to consider item under consideration as 'appliance' in the process of manufacture of 'drilling bits', and rejected the appeal after modifying the amount of penalty.
7. In appeal before us the following points were made:
(1) Rule 57A of the rules disallows modvat credit on machines, machinery, plant equipment, apparatus, tools and appliances, because they have repetitive use and cannot therefore, be treated as inputs for the final products manufactured. In their case, graphite moulds are not appliances, having repetitive use, but get spoiled/damaged completely and thus are consumed in one heat (sintering process) only;
(2) They are claiming modvat credit not on graphite moulds but on graphite rods which fully satisfy the criteria of inputs having been used in or in relation to the manufacture of diamond drilling bits, in terms of Rule 57A of the rules.
They relied on the Tribunal's decision reported in 1987 (11) ECR 348 (CEGAT) This case - Collector Central Excise, Allahabad v. Hindustan Aluminum Corporation Mirzapur related to benefit under Notification No. 201/79-CE as amended," providing for duty exemption on goods in the manufacture of which any goods falling under Item No. 68 had been used as raw materials or component parts.
(3) The Modvat scheme under Rule 57A of the rules is an amplified version of the set-off under notification No. 201/79, and uses the words 'in or in relation to the manufacture' which cover the indirect use also.
(4) Graphite rods used in the process of manufacture of diamond drilling bits are not appliances. They are not classifiable under Chapter X4 or Chapter 85 of the Tariff, as stipulated in Note No. 5 under Section XVI, but are classifiable under heading 38.01 of the Tariff.
(5) Under the modvat scheme it is not relevant whether the inputs form part of the final product and the modvat credit is available on consumables, as graphite rods are.
(6) If graphite moulds are considered as intermediate products and exempt from duty under notification No. 217/86-CE, dated 1.3.1986 then the CEGAT decision will be applicable, as it has been held therein that modvat credit can neither be denied nor varied even if non-dutiable intermediate product emerges during manufacture of dutiable final product, from duty paid inputs.
In this case - Vam Organic Chemicals Ltd. v. Collector of Central Excise the point for consideration was whether in view of the fact that the intermediate product ethyl alcohol was not leviable at all with Central Excise duty, the appellants were debarred from availing themselves of the credit of the Central Excise duty paid on the inputs namely molasses used in the manufacture of the final products--acetaldehyde, acetic acid, acetic anhydride etc. under Rule 57D(2).
(7) The provisions of Section 11A of the Central Excises and Salt Act, 1944 (hereinafter referred to as the 'Act') are clearly applicable to the present case. They relied on the Supreme Court decision relating to an incentive for extess production under Notification No. 108/78--Collector of Central Excise, Chandgarh v. Doaba Cooperative Sugar Mills. They also referred to the following citations in support of their arguments:
1. 1983 ELT 631 (CEGAT) : 1983 ECR 413D (Cegat WRB).
2. 1988 (14) ECR 725 (CEGAT).
3. 1988 (15) ECR 5 (CEGAT).
All these cases related to limitation for claiming sugar rebate, and demands for losses.
(8) They denied that the provisions of Rule 173Q(i)(bb) were applicable in their case, and submitted that imposition of personal penalty was not justified.
8. The matter came up for hearing on 21.12.1992 when Shri N.C. Sogani, learned Advocate appeared for the appellants, and Shri S.K. Sharma, learned SDR appeared for the respondents.
9. Shri Sogani, learned Advocate stated that the graphite rods were converted into moulds which were consumed in the process of manufacture of diamond drilling bits. These moulds were not marketable goods, and hence there was no question of paying any duty thereon. He argued that the case was also hit by lime bar.
10. He referred to the following citations in support of his arguments:
1. , relating to use of plastic granules for testing the machine (machine for manufacturing lay flat tubings).
2. relating to use of barium carbonate and soda ash for manufacturing in process material--caustic sodalye and caustic soda flakes, for the manufacture of final product--VC resin.
3. relating to use of felt and wire netting in respect of paper.
11. Shri S.K. Sharma, learned SDR referred to the Rule 57A and invited attention of the Bench to the exclusion clause in that rule. He argued that according to the Collector, graphite moulds were used again and again. In his view, graphite rods were used after conversion as apparatus, and thus will be excluded from the benefit of modvat. He referred to the decision in support of the points made by him.
12. In the case - Mukund Iron and Steel Works Ltd. v. Collector of Central Excise. sleeves, graphite and stopper head, used in ladle for pouring liquid metal in mould boxes were not found admissible for modvat credit. He added that the citations referred to by the learned Advocate were not applicable to the facts of the present case, and that the facts therein were distinguishable from the facts which were the subject matter in the present case. He also referred that Rule 571 was independent, and that before amendment by notification No. 28/88-CE(NT) dated 6.10.1988, there was no time limit for disallowing the credit wrongly availed of. He also mentioned that disallowing modvat credit wrongly availed of could not be deemed as demand of duly. He relied upon the decision of the Honourable Gujarat High Court in the case Torrent Laboratories Pvt. Ltd. v. Union of India .
13. We have carefully considered the arguments on both sides.
14. The provisions of Section AA of Chapter V of the Rules are applicable to such finished excisable goods (referred to as the 'final products') as the Central Government may by notification in the official gazette specify in this behalf. In respect of such final products the credit of any duty of excise or the additional duty under Section 3 of the Customs Tariff Act 1975, as may be specified in the said notification (referred to as the 'specified duty') paid on the goods used in or in relation to the manufacture of the said final products (referred to as the 'inputs'), is allowed. The credit so allowed could be utilised towards payment of duly of excise leviable on the final products whether under the Central Excises and Salt Act or under any other Act as may be specified in the said notification. This applicability was subjected to the provisions of that Section AA of Chapter V of the Rules and the conditions and restrictions that may be specified in the relevant notification.
15. In particular no modvat credit is available in respect of appliances, among others, if such appliances have been 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.
16. The appellants were bringing duly paid graphite rods falling under heading No. 38.01 of the Tariff. Under heading No. 38.01 the following is the description of goods:
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.
This heading besides the graphite of all sorts also covers preparations based on graphite.
17. They claimed utilisation of the credit of the duly of excise paid thereon towards payment of duly of excise leviable on diamond drilling bits falling under heading No. 82.07 of the Tariff.
18. Under heading No. 82.07 the following goods are covered:
Interchangeable tools for hand tools, whether or not power operated, or for machine-tools (for example, for pressing, stamping, punching, tapping, threading, drilling, boring, broaching, milling, turning or screw driving), including dies for drawing or extruding metal, and rock drilling or earth boring tools.
19. There is no dispute that the goods falling under heading No. 38 and No. 82 of the Tariff are specified as inputs and final products respectively, under notification No. 177/86-CE, dated 1.3.1986 (as amended), issued by the Central Government in exercise of the powers conferred by Rule 57A of the rules.
20. The point for consideration is whether graphite rods were used in or in relation to the manufacture of diamond drilling bits, and if yes then whether such inputs were excluded from the applicability of the provisions of Rule 57A of the rules by virtue of specific exclusions referred to in that rule, in respect of 'appliances'.
21. 'Bits' are a machine part for drilling or boring. They are clamped in a holder before being fitted into the drill.
22. 'Drill' is a rotating end cutting tool for creating and enlarging holes in a solid material.
23. 'Diamond drill' is a drilling machine with a hollow diamond set bit for boring rock and yielding continuous and columnar rock samples.
24. 'Graphite' is a mineral consisting of a low-pressure allotropic form of carbon; it s soft, black, and lustrous and has a greasy feeling; it occurs naturally in hexagonal crystals or massive or can be synthesized from petroleum coke by heating coke in an electric furnace with a little iron (ferric) oxide as catalyst, hardness is 1-2 on Mohs scale, and specific gravity is 2.09-2.23, used in pencils, crucibles. lubricants, paints and polishes.
25. Graphite conducts heat and does not combine with other chemicals except at very high temperatures. Therefore, many crucibles (melting pots for metals) are made from graphite.
26. According to the appellants, they were bringing graphite rods from outside. The graphite rods were of the length of approx. 12 inch with diameter varying from 2 inch to 16 inch. These graphite rods were cut into small pieces/slices of required sizes. Such pieces/slices were then machined in the form of rings, rings for water courses, centre pieces and cavities.
27. Diamond drilling bits were produced by transfer of carbide powder and diamonds on to the steel shanks in a furnace at a high temperature of 2100°F.
28. The processed graphite rods were put into furnace where sintering process was carried on. Sintering is the process of making metal parts from powdered metals. The powdered metals are pressed together in a die and are then heated in a furnace. The particles sinter (become bound) to each other, forming strong metal products. Sintering is used to make bearings, gears and similar parts.
29. The criteria for eligibility of modvat credit under Rule 57A of the rules has been laid down by the Tribunal in the case - Collector of Central Excise v. Standard Alkali as under:
Despite repetition, we are to observe that the question to be looked into, in the context of Rule 57A, is not the one whether it is consumed wholly or partly or the longer duration for repeated usage or whether it is consumable or otherwise. The first pertinent question to be raised is whether the item claimed as input is used in or in relation to the manufacture of final product. If the answer is 'yes', the next question is whether both namely, the item claimed as 'input' and the final product where it is claimed to be used, are notified under modvat scheme. If they are so notified, they become eligible for modvat credit subject to the important provision namely--whether the said input comes or does not come under the excluded category listed in the explanation to Rule 57A. These are the three acid tests prescribed under Rule 57A and nothing else. Hence, in the present appeals, there is no dispute that graphite/titanium metal anodes are used in the manufacture of caustic soda lye. They are also notified under the modvat scheme. The area of dispute is whether they come under the category of plant items--functionally identified with electrolytic cell--an equipment and hence are hit by the explanation to Rule 57A.
30. The first point for our consideration at this stage is whether graphite rods are used in or in relation to the manufacture of diamond drilling bits.
31. The word 'manufacture' has been defined in Section 2(1) of the Act, as under:
(f) 'manufacture' includes any process--(i) incidental or ancillary to the completion of a manufactured product; and (ii) xx xx xx".
32. It is an inclusive definition.-According to the dictionary, the term 'manufacture' means a process which results in an alteration or change in the goods which are subjected to the process of manufacturing, leading to the production of a commercially new article. The manufacture is the end result of one or more processes through which the original commodities are made to pass. There may be several stages of processing, a different kind of processing at each stage.
33. In J.K. Cotton Mills v. Sales Tax Officer the Hon'ble Supreme Court, in construing the expression 'in the manufacture of goods' held as under:
Where any particular process is so integrally connected with the ultimate production of goods that but for that process, manufacture or processing of goods would be commercially inexpedient, goods required in. that process would in our judgment fall within the expression 'in the manufacture of goods.
34. In the case - Collector of Central Excise v. Eastend Paper Industries , the Hon'ble Supreme Court referring to their decision in the J.K. Cotton Spinning & Weaving Mills Co. Ltd. v. Sales Tax Officer 1965 (16) S.TC 563 (SC) while construing the expression 'in the manufacture or processing of goods for sale', in the context of sales tax law, though the concept is different under the excise law, had held that manufacture of goods should normally encompass the entire process carried on by the dealer of converting raw materials into finished goods. Where any particular process, the Hon'ble Supreme Court emphasised, is so integrally connected with the ultimate production of' goods that but for that process manufacture or processing of goods would be commercially inexpedient, articles required in that process would fall within the expression 'in the manufacture of goods'.
35. In the case - Collector, Central Excise v. Ballarpur Industries Ltd. the Hon'ble Supreme Court had distinguished between the manufacturing process and the manufacturing apparatus.
36. 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 ingredient goes 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. This quality should coalesce with the requirement that its utilisation is in the manufacturing process as distinct from the manufacturing apparatus.
37. As regards what could be said to be 'goods' merely 'used' in the manufacture and what constitutes goods used as 'raw material' for the purpose, the Hon'ble Supreme Court had to say as under:
We are afraid in the infinite variety of ways in which these problems present themselves it is neither necessary nor wise to enunciate principles of any general validity intended to cover all cases. The matter must rest upon the facts of each case. Though in many cases it might be difficult to draw a line of demarcation it is easy to discern on which side of the border line a particular case falls.
38. They quoted with approval the extracts from the Hamlyn Lectures of 1987:
Pragmatism and Theory in English Law." page 75, as under:
...A common form of argument used by Counsel in legal cases is to suggest that if the Court decides in favour of the opposing Counsel's arguments, it will become necessary to draw lines which may be very difficult or impossible to draw. 'Where will you draw the line' is of course a question which must be faced by a legislator who is actually proposing to lay down lines for all future cases, but it is not a question which needs in general to be faced by common law courts who proceed in slow stages moving from case to case...
39. To our mind line has been drawn by the law makers to this effect by using the expression 'in or in relation to the manufacture of the said final product', in Rule 57A of the rules.
40. In the case - Collector of Central Excise v. Rajasthan State Chemical Works , the Hon'ble Supreme Court had an occasion to deal with the expression 'in or in relation to the manufacture of which' in the context of notification No. 179/77-CE, dated 18.6.1977. That notification No. 179/77-CE provided exemption to the goods falling under then item No. 68 in or in relation lo the manufacture of which no process was ordinarily carried on with the aid of power.
41. The respondents in that case were manufacturer of Crude Sodium Sulphate. In the process of manufacture of common salt from brine, in the salt pans in which the process of evaporation took place, some quantities of sodium sulphate present in the brine also crystallised and settled at the bottom as crust. The sodium sulphate was thus obtained as a bye-product. For the purpose of the manufacture, brine was pumped into salt pans using diesel pumps.
42. Other respondents in the case were manufacturer of lime from coke and limestone. The raw materials were lifted to the platform at the head of the kiln by the aid of power. At the kiln head, the raw materials were mixed manually and fed into the kiln.
43. The Hon'ble Supreme Court observed that manufacture involves series of processes. Process in manufacture or in relation to manufacture implies not only the production but the various stages through which the raw material is subjected lo change by different operations. It is the cumulative effect of the various processes to which the raw material is subjected to, manufactured product emerges. Therefore, each step towards such production would be a process in relation to the manufacture. Where any particular process is so integrally connected with the ultimate production of goods that but for that process manufacture or processing of goods would be impossible or commercially inexpedient that process is one in relation to the manufacture.
44. The Hon'ble Supreme Court were of the view that if any operation in the course of manufacture is so integrally connected with the further operations which result in the emergence of manufactured goods and such operation is carried on with the aid of power, the process in or in relation lo the manufacture must be deemed lo be one carried on with the aid of power.
45. The expression 'in relation to' was also analysed by the Hon'ble Supreme Court in the case - Doypack Systems (Pvt.) Ltd. v. Union of India although in a different context. The Hon'ble Supreme Court observed that the expression 'in relation to' (so also 'pertaining to') is a very broad expression which presupposes another subject matter. These are words of comprehensiveness which might both have a direct significance as well as an indirect significance depending on the context.
46. In the case - Straw Products Ltd. v. Collector of Central Excise and Customs , the Tribunal had occasion to discuss the admissibility of felt and wire netting for modvat credit in respect of paper. Felt which are articles of textile material and wire netting of stainless steel and phospher bronze cannot by themselves be treated as machine or machinery equipment, appliances etc. The Tribunal found that items machines, equipment, appliance, apparatus and tools are complete articles, capable of independent functioning and added that such was not the case with felt. It has to be fitted in the paper making machine for use. It was, therefore, held that the items felts and wire netting were inputs used in or in relation to the manufacture of papers and not used in relation to the machines only.
47. Whether graphite moulds are an appliance or not will be discussed ahead. At this stage, it can, however, be said that use of graphite rods converted into graphite moulds was in relation to the manufacture of diamond drilling bits and not directly in the manufacture of diamond drilling bits.
48. In the case--Collector, Central Excise, Allahabad v. Hindustan Alum. Corporation, Mirzapur 1987 (11) ECR 348 (CEG AT), the Tribunal had an occasion to decide about the benefit under Notification No. 201/79-CE amended by notification No. 105/82-CE. Notification No. 201/79-CE as amended provided for duty exemption on goods in the manufacture of which any goods falling under item No. 68 had been used as raw materials or component parts. The exemption was from so much of the duty of excise as was equivalent to the duty of excise already paid on the raw materials or component parts. The matter related to the use of cryolite, aluminium fluoride, borax and lime in the manufacture of aluminium. The Tribunal had held as under:
Use of these materials is inescapable and the manufacture of aluminium would be impossible without these chemicals and substances. While it is true that they do not form constituents in the final product aluminium their use in the process of manufacture in the system is imperative if aluminium is to be obtained from the bauxite. In fact, at present, there is no commercially acceptable method to make aluminium in which these and other substances are not used and consumed without becoming constituents of aluminium.
49. Regarding the borax and lime, it was observed that they were necessary to the reduction and decomposition of the aluminium, to free the metal aluminium to a recoverable state.
50. According to the Tribunal substances, articles, items that are used and consumed in the process of production as part of the system of manufacture should qualify as raw materials under Notification No. 201/79-CE.
51. In the case before us graphite rods converted into graphite-moulds are used not as raw material or component part of the finished product-diamond drilling bits. We have, however, taken a view that they are used in relation to the manufacture of the diamond drilling bits. Nevertheless it is not enough for the eligibility of modvat credit as it has yet to be seen that the graphite rods converted into graphite-moulds are not excluded from the applicability of Rule 57A interms of specific exclusions of appliances etc.
52. In the case - Vain Organic Chemicals Ltd. v. Collector, Central Excise , the point for consideration was whether in view of the fact that the intermediate product ethyl alcohol was not leviable at all with Central Excise duty, the appellants were debarred from availing themselves of the credit of the Central Excise duly paid on the inputs namely Molasses used in the manufacture of the final products--acetaldehyde, acetic acid, anhydride and vinyl acetate monomer, under Rule 57D(2).
53. The Tribunal viewed that Sub-rule (2) of Rule 57D should be read to mean not only that credit of input duty shall not be denied or varied in cases where excisable intermediate products emerged but are for the time being exempt from duly or are chargeable to nil rate of duly but also that if a non-excisable intermediate product emerges in the course of manufacture of a specified final product from a specified input the credit of the input duty is not impermissible.
54. In the case before us classification of graphite-moulds or their liability to duly or eligibility to exemption and such related questions are not before us. In any case graphite-moulds cannot be considered as intermediate products in the manufacture of diamond drilling bits. Thus the view taken by the Tribunal in the above case has no relevance to the matter before us.
55. Thus in so far as the question regarding use of graphite rods converted into graphite-moulds, L or in relation to the manufacture of diamond drilling bits, is concerned, we have no hesitation in answering it in the affirmative. We, however, hasten to add that graphite rods converted into graphite-moulds by themselves do not participate in the processes which are carried out in processing the materials which ultimately lead to the manufacture of diamond drilling bits. This factor has an important bearing on the interpretation of exclusion clause in Rule 57A and inclusion clause in Rule 57D of the Rules.
56. Further, saying that process of sintering in the furnace at high temperature is integrally connected with the ultimate production of goods, is different from saying that graphite-rods, converted into graphite-moulds have to be treated as a part of manufacturing process of diamond drilling bits.
57. Let us now consider whether graphite rods as converted into graphite moulds, are excluded from the applicability of the provisions of Rule 57A of the Rules, by virtue of specific exclusions under that Rule in respect of machines, machinery, plant, equipment, apparatus, tools and appliances, 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.
58. It has been mentioned in the Order-in-Appeal that graphite rods were inputs for graphite moulds which were used as appliances for producing or processing of the final products. The Collector (Appeals) had observed that the graphite rods after being cut and machined fall in the category of 'material' which are put on the manufacturing machine to perform a certain function in the process of manufacture and hence fit in the definition of apparatus/appliances given in the new Lexicon Webster's Dictionary 1987 Edition page 43.
59. In their memo of Appeal the party has stated that graphite-moulds were not appliances having repetitive use but get spoiled/damaged completely and thus are consumed in one heat (sintering process). Thus, admittedly the graphite rods are converted into graphite moulds, and then used in relation to the manufacture of diamond drilling bits.
60. 'Mould' is a cavity which imparts its form to a fluid or malleable substance. It has also been defined as a hollow shape in which anything is formed or cast. The shape or frame on or about which something is made, is also called a mould.
61. As admitted by the party the graphite-moulds are consumed in one heat. One heat may be one batch, one round, one lot or the span of time during which the furnace will remain hot at the desired and required temperature. In one heat a number of diamond drilling bits are produced. Thus, the graphite moulds have repetitive use in so far as production of a number of diamond drilling bits is concerned.
62. What is a mould? The Tribunal in the case - Bakelite Hylam Ltd. v. Collector of Customs had observed as under:
A mould is a recess or hollow or a cavity into which material soft, molten, or which is otherwise plastic, is to be formed into an article or a shape that it did not have. A machine part, for example, can be formed by pouring molten steel into a mould to give it outline or contour of the part or component which it will comprise. Such a cast or moulded part or component may or may not require subsequent finishing machining and working to complete the process of its manufacture. Similarly, all kinds of parts, components, shapes and contours can be made by plastic being poured and moulded in moulds where they form into the required shapes with or without pressure being applied to them. The formation of the shape is brought about by the shape of the mould and the molten plastic material to be formed takes the form of the hollow mould into which it is poured and in which usually it is allowed to cool so that it takes permanent shape therefrom. In all cases of moulding, there is a definite shaping given to a lump of shapeless material, a shape or form that it can never have had but for the fact that it is placed in the mould and allowed to cool and harden in it and thus to acquire the desired shape permanently.
63. Now let us consider whether graphite-mould is an appliance.
64. The word 'appliance' is made from the expression 'apply', application. It is a thing applied-device.
65. The appliance is a thing used in doing something.
66. Depending upon the application required, a simple device could be an appliance. A simple knife is an appliance for cutting the vegetables. Similarly, a can opener is an appliance for opening the cans.
67. In the context and for the purpose the expression "appliances" has been used in Rule 57A, it is obvious that a comprehensive meaning has to be given to them. This is also clear from the fact that for the purposes of that rule appliances used not only for producing or processing of any goods but also appliances for bringing about any change in any substance, in or in relation to the manufacture of the final products are excluded from the definition of the "goods used in or in relation to the manufacture of the said final products".
68. In this connection how apt are the following observations:
The object of the Excise Tax Act is to raise revenue and for this purpose to class substances according to the general usage and known denominations of trade. In my view therefore, it is not the botanist's conception as to what constitutes a "fruit" or "vegetable" which must govern the interpretation to be placed on the words but rather what would ordinarily in matter of commerce be included therein." King v. Planters Nut and Chocolate 1951 - Canada Law Reports P. 122.
69. In the case - Associated Cement Company Ltd. v. Collector, Central Excise , the Tribunal has held that the benefit of Modvat credit cannot 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. Thus the Tribunal has held that not only the goods specifically excluded but even goods used in relation to those excluded goods, are debarred from the Modvat credit..
70. In the case - Mukund Iron and Steel Works Ltd. v. Collector, Central Excise , the West Regional Bench of the Tribunal had an occasion to consider the admissibility of sleeves, graphite and stopper head, for modvat credit. Sleeves wee made out of insulating materials which were used as runners and risers in the production of castings. They were used in the moulds.
71. Clay graphite stopper heads were made up of carbon and fire clay. This was used in ladle for pouring of liquid metal in mould boxes. It was fixed to one end of the rod over which fire clay sleeves were used.
72. While dealing with binders (foundry chemicals) for preparation of cores the Tribunal had observed that they were admittedly used in the preparation of sand moulds which are the receptacle for pouring the molten metal to obtain the desired castings. According to the Tribunal the sand moulds and other moulds for metal were recognised in the Central Excise Tariff as coming in the category of equipment, apparatus or appliances, and held that sand moulds were in the nature of equipment or apparatus used for the purpose of castings. They were produced independently and used for castings. Further, they could not be considered to have come into existence during the course of manufacture of the final product. They, therefore, held that the binders and foundry chemicals were not eligible for modvat credit.
73. As sleeves and stopper heads could at the most be construed as fittings in moulds and ladle for pouring of liquid metal in mould boxes, it was held that modvat benefit was not admissible with regard to these inputs.
74. In the case before us the graphite rods purchased from outside were converted into moulds before their use in the sintering process. These graphite-moulds imparted the shape and size to the diamond drilling bits. These moulds continued to be used in one heat (sintering process).
75. Thus the rationale of the Tribunal judgment in the Mukund Iron and Steel Works case is applicable to the facts before us.
76. In the case - W.S. Industries (India) Ltd. v. Collector, Central Excise , the Tribunal has quoted the definition of 'appliance' in the Law Lexicon Dictionary 1979 as under:
We observe that in so far as the cone is concerned it is a device to indicate the temperature. As per the dictionary meaning of the term 'apparatus' as set out in various dictionaries it is defined as an appliance and the term 'appliance' has been defined as a 'device' or a 'piece of equipment'. The term 'appliance' in the Law Lexicon has been defined as under:
From the meanings given by different dictionaries "it becomes clear that (1) an "appliance" is quite distinct from "materials" from which it is made, and (2) an "appliance", as an apparatus, device or instrument, is "a means to an end". These two aspects should be borne in mind while considering whether a particular article can be called an appliance. The first aspect seeks to take an integrated view of the article concerned and says that materials or component parts of an appliance should not be mistaken as tantamount to the appliance itself. The second aspect emphasises the fact that the importance of an appliance consists in its utility to serve the object for which it is possessed.
77. They have held that pyrometric cones used in the furnace to indicate the desired degree of heating of the ceramic material answers to the description of the term 'apparatus' or 'appliance'.
78. In the case - Collector, Central Excise v. Resell Extrusion Teclnic (I) Ltd. the point for consideration was whether plastic granules used for testing the machine manufactured for making lay flat tubings were eligible for modvat credit under Rule 57A of the Rules as inputs used in or in relation to the manufacture of the finished product.
79. The Tribunal observed that in that case plastic granules came to be used after the final product namely extrusion machine manufactured by the respondents was fully finished. The testing was only done to detect defects if any, in the finished product. They, accordingly, held that the materials used for testing the fully finished machines were not to be considered as materials used in or in relation to the manufacture of the final product namely the extrusion machine.
80. The rationale of this decision is not applicable to the facts before us.
81. In this case we are not concerned with the classification of graphite moulds. We are also not concerned with the question whether processing of graphite rods and their conversion into graphite-moulds, amounted to a process of manufacture or not. Thus, we are not required to deal with the applicability or non-applicability of Rule 57D of the Rules. Suffice it to say that in the proviso to Sub-rule(2) of Rule 57D, the expression is "in the manufacture of a final product", and not "in or in relation to the manufacture of the said final products" as in Rule 57A. In our view, the provisions of Sub-rule (2) of Rule 57D will be applicable only when the intermediate products have come into existence during the course of manufacture of the final product and are used in their manufacture itself, as opposed to the manufacture of anything which is used only in relation to the manufacture of the notified final product.
82. The appellants themselves have called the material used in the furnace as graphite-mould. These moulds are used for one heat/sintering process. These moulds as such are not used in the manufacture of diamond drilling bits, for the purposes of Rule 57D of the Rules. These graphite moulds processed from graphite rods are applied in the furnace to bind particles of the powdered metals to form the bits. In this process referred to by the party as sintering process, the graphite rods converted into graphite moulds are used as an 'appliance'. As appliances 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, are excluded from the applicability of Rule 57A, the graphite rods used in relation to the manufacture of diamond drilling bits are not the inputs for the purposes of that Rule.
83. In the case - Collector, Central Excise v. D.C.W. Ltd. the South Regional bench of the Tribunal had observed that so long as it can be shown that the inputs have been used for manufacture of in-process material which are used in the manufacture of final product the said material manufactured out of the inputs before it is finally used in the manufacture of the declared final product will have to be treated as intermediate product. As in the case before the Tribunal Caustic Soda lye and Caustic Soda Flakes emerged during the manufacturing process by use of Barium Carbonate and Soda Ash and were used as in-process material for the manufacture of PVC resin the Tribunal held that the benefit of modvat credit was available.
84. In the case before us graphite rods are used for manufacture of graphite moulds. These graphite moulds cannot be considered as in-process material in the sense caustic soda lye and caustic soda flakes emerged from barium carbonate and soda ash in the process of manufacture of PVC resin. These graphite moulds did not participate directly in the manufacture of diamond drilling bits. They were only used in relation to the manufacture of the diamond drilling bits as an appliance to facilitate sintering process in the furnace.
85. Thus the above decision of the Tribunal in no way affects the conclusions drawn by us.
86. Accordingly, we hold that the credit of the duty of excise paid on graphite-rods is not allowed for utilisation towards payment of duty of excise leviable on the diamond drilling bits.
87. Now, we may take up the question of limitation.
88. The Show Cause Notice in this case is dated 8.3.1988. The period covered is from 5.8.1986 to 14.11.1987. As per the Show Cause Notice, the credit was sought to be disallowed under Rule 57I. Before 6.10.1988, Rule 571 read as under:
Recovery of credit wrongly availed of or utilised in an irregular manner:
(1) If the credit of duty paid on inputs has been taken wrongly, the credit so taken may be disallowed by the proper officer and the amount so disallowed shall be adjusted in the credit account or the account-current maintained by the manufacturer or if such adjustments are not possible for any reason, by cash recovery from the manufacturer of the said-goods.
Provided that such manufacturer may make such adjustments on his own in the credit account or the account-current maintained by him under intimation to the proper officer.
(2) If any inputs in respect of which credit has been taken are not fully accounted for as having been disposed of in the manner specified in this section the manufacturer shall upon a written demand being made by the Assistant Collector of Central Excise pay the duty leviable on such inputs within 10 days of the notice of demand.
89. In the case - Torrent Laboratories Pvt. Ltd. v. Union of India the Hon'ble Gujarat High Court were dealing with an identical issue, and held as under:
There is no dispute with regard to the fact that no period of limitation was provided in the rule. Therefore, the contention based on the absence of provision with regard to the period of limitation be examined. However, this contention is covered by a decision of the Supreme Court in the case of Government of India v. Citadel Fine Pharmaceuticals, (SO. In that case Rule 12 of the Medicinal and Toilet Preparations (Excise Duties) Rules, 1956, the provisions of which are pari material with the unamended provisions of Rule 57-I was challenged before the Supreme Court. It was contended that the provisions of Rule 12 was unreasonable and violative of Article 14 of the Constitution of India. The Supreme Court negatived the contention and held that simply because the rule does not prescribe any period for the recovery of duty, the provision cannot be said to be ultra vires the provisions of Article 14 of the Constitution. In absence of any provision with regard to the specific period of limitation, reasonable period of limitation has got to be read into it. This is how the Supreme Court has upheld the provisions of Rule 12 of the Medicinal and Toilet Preparations (Excise Duties) Rules, 1956. The same principle would be applicable to the provisions of Rule 57-I of the Rules as it stood prior to the amendment. Hence there is no substance in this contention and the same has got to be rejected.
90. The Hon'ble High Court also did not accept the contention that the provisions of Section 11A of the Act as regards the period of limitation should be read into Rule 57I as it stood prior to the amendment on 6.10.1988, for the following reasons:
(1) Section 11A of the Act provides for recovery of duties in certain cases and it has come into force with effect from November 17, 1980. This provision is contained in the Act while the provisions of Rule 57-I relating to recovery of wrongfully availed of MODVAT credit has come into force with effect from March 1,1986. The Government has exercised the power conferred upon it under Section 37 of the Act by which the Government is empowered to make rules to carry into effect the purpose of the Act. Rules 57A to 57P relating to MODVAT scheme are framed to streamline the process of levy and collection of excise duty. By no stretch of reasoning it can be said that the rule is enacted for extraneous purpose. It does subserve the purpose of the Act, i.e. the levy and collection of excise duty on goods manufactured or produced in the country. Rule makes a different and specific provisions with regard to MODVAT credit wrongfully availed of or wrongfully utilised. Provisions of Section 11A do not provide that the legislature shall not make specific provisions with regard to particular types of credit availed of by the assessee. There is nothing inconsistent in Rule 57-I which cannot be enacted by the legislature when the provisions of Section 11A of the Act is in operation. Section 11A of the Act occupies the general field while Rule 57-I deals with specific field of wrongful availment of MODVAT credit. Rule 57-I is enacted by the legislature in exercise of powers conferred upon it under Section 37 of the Act and not under Section 11A of the Act. The provisions of Rule 57-I is to be in conformity with the provisions of Section 37 of the Act. On March 1,1986 when Rule 57-I was enacted and brought on the statute book the legislature was aware about the provisions of Section 11A of the Act being in force. Therefore it has got to be presumed that the legislature has made the provision with a specific purpose. It is cardinal principles of interpretation of statutes that the legislature does not indulge in exercise in futility.
(2) It is over-simplification to say that Rule 57-I as it stood prior to amendment is nothing but provision with regard to recovery of duty as it is in the case of short-payment of duty, short-levy of duty or under-assessment. Section 11A of the Act is a general provision which covers and deals with all types of short-levy, short-payment and under-assessment. On the other hand, the provisions with regard to the MODVAT scheme (Rules 57A to 57P) have been introduced in the statute book by notification dated March 1, 1986. Provisions with regard to MODVAT may be analogous to the provisions of set-off contained in Rule 56A, but it is not set-off by way of proforma credit. There is distinction between the two. The very fact that despite the provisions of Section 11A of the Act and Rule 56A being on the statute book, the legislature thought it fit and proper to make special provisions with regard to the cases of wrongful availment of credit by enacting Rule 57-I shows that the legislature did not intend to apply the general provisions contained in Section 11A of the Act to the cases of wrongful availment of credit which is specifically provided for in Rule 57-I. (3) There are certain distinguishing and special features of MODVAT scheme. If these features are noted, it would be clear that the provisions with regard to MODVAT scheme is a special one and the provisions contained in Rule 57-I regarding wrongful availment of MODVAT credit is also special. The special and distinguishing features of MODVAT scheme of which Rule 57-I is a part, may be noted:
(a) MODVAT, unlike the provisions of profonna credit contained in Rule 56A is applicable not only to raw materials, components and end products, but it applies to 'inputs' as defined in the MODVAT scheme itself. 'Input' can be an end product and it may not be necessarily raw material or component product of any other product. The term 'input' defined in the scheme itself shows that 'input' may be anything used in addition to or relating to the end product. Thus 'input' may be even packing of the end product. 'Input' may be something other than the raw material or component part of it. In this view of the matter, duty wise and commodity wise, scope 01 MODVAT scheme is far wider than that of set-off contained in Rule 56A of the Rules. The type of cases covered by MODVAT are required to be specifically dealt with as provided by the legislature, and they are not to be dealt with as per the provisions of Section 11A of the Act and Rule 56A of the Rules.
(b) As far as the procedure of MODVAT scheme is concerned, it is also different. While taking MODVAT credit the assessee is not required to wait for permission of the Department. He has just to make declaration and obtain acknowledgement of the declaration. After having obtained acknowledgement of the declaration, he can straightaway start taking credit in respect of the 'inputs' utilised by him for the purpose of manufacture of end product.
(c) Basis of MODVAT--mutual trust and confidence. While enacting MODVAT provision, legislature has reposed a sort of trust or confidence on the assessee. The legislature expects the same type of candid and forthright behaviour on the part of the assessee. Assessee himself is required to keep proper account of the credit availed of and utilised. In case of mistake, even assessee himself can correct the mistake under intimation to the department.
(d) In cases governed by Section 11A of the Act and Rule 56A of the Rules, the assessee as well as the Department may start with suspicion. The assessee may feel that the Department is trying to exact the property of the individual citizen without authority of law and even when it is authorised by law the same is being exacted unlawfully and in unjust manner. The Department may start with the premise that so long as the assessee can, he will never pay the legitimate excise duty payable to the State. Such suspicion cannot be the basis as far as the MODVAT scheme is concerned. MODVAT scheme rests on the trust and goodwill of both the sides. It is a relationship of mutual trust. It is not a relationship of mutual distrust.
(e) Thus it is evident that the MODVAT scheme and the provisions contained therein are a special provision. The special scheme regarding availing of the MODVAT credit provides its own special provision with regard to the steps to be taken in cases of wrongful availment of credit.
12. Whenever a general provision is in operation and thereafter knowing fully well that the general provision is in operation, the legislature enacts a special provision, it has got to be presumed that the legislature did not intend the general provision to apply to the special cases culled out by it. The general provision made in that sphere has got to yield to the special provision. This is one of the basic principles of interpretation of statutes. In this connection reference may be made to a decision of the Supreme Court in the case of J.K.C.S. & W. Mills v. State of UP . In para 9 of the judgment the Supreme Court has held that specific provision prevails over the general provision and the general provision applies only to such cases which are not covered by special provision. The rule applies to both type of cases, that is, while interpreting different provisions in different statutes as well as in the same statute. The Supreme Court has observed as follows:
The learned Attorney-General seemed to suggest that while this rule of construction is applicable to resolve the conflict between the general provision in one Act and the special provision in another Act, the rule cannot apply in resolving a conflict between general and special provisions in the same legislative instrument. This suggestion does not find support in either principle or authority. The rule that general provisions should yield to specific provisions is not an arbitrary principle made by lawyers and judges but springs from the common understanding of men and women that when the same person gives two directions one covering a large number of matters in general and another to only some of them his intention is that these latter directions should prevail as regards these while as regards all the rest the earlier direction should have effect.
12A. Similar view is taken by the Supreme Court in the case of State of Gujarat v. Patel Ramjibhai Danabhai . In that case, the legality and validity of provisions of Section 33(6) of the Bombay Sales Tax Act, 1959 corresponding to Section 14(6) of Bombay Sales Tax Act, 1953 came up for consideration before the Supreme Court. It was contended that no time-limit was provided in this specific provision, while for taking actions in other cases. Section 35 provided time-limit and therefore the provisions should be held to be ultra vires. The Supreme Court applied the maxim GENERAUA SPECIALIBUS NON DEROSANT and negatived the contention. The Supreme Court held that the provision of Section 33(6) of the Bombay Sales Tax Act, 1959 was confined to a particular class of tax evaders while Section 35 of the Bombay Sales Tax Act, 1959, was a general provision dealing with escaped assessment or under - assessment. Thus whenever the legislature makes general provision and in the same sphere makes a special provision which would be applicable to specific cases, the provision relating to specific cases would be applicable to specific cases and not the provision relating to general cases.
91. Although the Hon'ble Karnataka High Court in the case - Thungabhadra Steel Products Ltd. v. Superintendent of Central Excise had observed that Rule 571 as it stood before amendment with effect from 6.10.1988 should receive the same interpretation as it should receive after amendment, we find that the views taken by the Hon'ble Gujarat High Court in the case of Torrent Laboratories are based on detailed analysis of law and facts. We find ourselves in respectful agreement with the views held by the Hon'ble Gujarat High Court.
92. In the case - Collector, Central Excise v. Memory Steel Pit. Ltd. the demand was raised on account of wrong availment of modvat credit on bazar scrap of iron and steel. The credit was taken during the period from April 1986 to September 1986, for which a Show Cause Notice demanding the duly amount was issued on 8.6.1987 by the Superintendent invoking the provisions of Rule 571. The matter was adjudicated by the Assistant Collector who passed the Order dated 7.6.1988 confirming the demand. The WRB of the Tribunal had observed that even for demanding reversal of the credit already taken under Rule 57I the provisions of Section 11A would stand attracted and the demand has to be raised within the period of 6 months.
93. This judgment of the WRB of the Tribunal did not contain reasons as why they had taken the view that for demanding reversal of the credit already taken under Rule 57I, the provisions of Section 11A would be attracted. They have simply stated as under:
This Bench has been taking a consistent view that even for demanding reversal of the credit already taken under Rule 57-I, the provisions of Section 11A would stand attracted and the demand has to be raised within the period of six months. Here that has not been done. The Show Cause Notice issued has not spelt out any suppression or any mis-representation. The notice was issued by the Supdt. and the adjudication was made by the Asstt. Collector confirming the demand beyond six months. Considering on these grounds, we find no merit in the appeal filed by the department. Therefore, the appeal stands dismissed.
94. As against the above, the same bench of the Tribunal, in the context of proforma credit procedure under Rule 56A of the rules in the case - Collector, Central Excise, Thane v. Bharat Bijlee Ltd., Thane had held by majority decision that in the case of variation of the credit allowed under proviso 3 to Rule 56A(2) of the Rules there was no scope to apply the provisions of Section 11A of the Act.
95. The matters in the cases - Collector, Central Excise, Allahabad v. Balrampur Chini Mills 1988 (14) ECR 725 (CEGAT), Collector, Central Excise, Allahabad v. Tulsipur Sugar Company Ltd. 1988 (15) ECR 5 (CEGAT) and Collector, Central Excise, Chandigarh v. Doaba Cooperative Sugar Mills , related to the production incentive for excess production of sugar under Notification No. 108/78-CE, dated 28.4.1978.
96. In the case - Hindustan Petroleum Corporation Ltd. v. Collector, Central Excise, Bombay 1983 ELT 631 (CEGAT) : 1983 ECR 413D (Cegat WRB) the demands had been issued for losses covered by Rule 160 of the rules.
97. The facts in these cases were different and the rationale is not applicable for deciding the matter before us.
98. We may also refer that the Hon'ble Supreme Court in the case - Inspector of Central Excise and Ors. v. Good Shephard Rubber Co. 1986 (6) ECR 4 (SC) had observed that where the assessee adopted self removal procedure under which liability to duty is determined by the assessee himself, the provisions of Rule 173I(2) and not Rule 10 (as then it was) were applicable. The case was one of scrutiny and finalisation of self-assessment returns submitted by the respondent in accordance with the provisions of Central Excise Rule 173I. Under the said Rule an assessment was made by the proper officer and in case the duty so determined was more than the duty paid by the assessee, the assessee was bound to pay the deficiency.
99. In the case before us also the appellants were working under the provisions of Rule 173I of the Rules.
100. Accordingly, we reject the contention of the appellants that the Show Cause Notice issued in this case was hit by the limitation.
101. In the result, we uphold the impugned order; however, in the circumstances of the case, we set aside the penalty of Rs. 100/-.
102. Subject to above, the appeal is hereby rejected.
103. The stay granted on 4.8.1989 is hereby vacated.