Customs, Excise and Gold Tribunal - Delhi
Collector Of Central Excise vs Durgapur Cement Works on 7 November, 1996
Equivalent citations: 1997(90)ELT197(TRI-DEL)
ORDER
U.L. Bhat, J. (President)
1. Respondent is engaged in manufacture of Portland slag cement. One of the machines used for the purpose is "Ball Mill". Raw materials used are slag, gypsum and clinker which are crushed with the help of steel balls called "grinding media". Respondent was availing Modvat credit under Rule 57A of Central Excise Rules, 1944 (for short, the Rules) of the Central Excise duty paid on the steel balls. By letter dated 4-4-1989, the jurisdictional Assistant Collector informed Respondent that the order of the Superintendent of Central Excise disallowing credit of Rs. 1,01,878.12 for the period 14-3-1987 to 8-10-1988 of the Excise duty paid on steel balls on the ground that Steel Balls are not connected with manufacture of cement and are used in the form of plant, machinery, tools, appliances etc. covered by exclusion Clause (i) of Explanation to the Rule was correct. Collector (Appeals), at the instance of Respondent, set aside the above decision on the ground that the process of powdering slag, gypsum and clinker is an essential process in relation to manufacture of cement arid Steel Balls used in the Ball Mill to powder the articles are "inputs" for the purpose of Rule 57A of the Rules and Steel Balls are not fitted to any equipment and are not covered by the exclusion Clause (i) of the Explanation to the Rule and hence Respondent is entitled to the benefit of Modvat credit. This order is being challenged by the Collector of Central Excise. A Bench which heard the appeal, noticed the conflicting decisions of different Benches on the question arising for decision and referred the appeal to Larger Bench. Accordingly the appeal came up before this Larger Bench, duly constituted.
2. We have heard Shri T.R. Malik, SDR for the appellant, Shri S.K. Bagaria, Advocate of the Respondent and Sri Vishwanathan, Advocate who appears in another appeal for an assessee in a similar position.
3. At the outset we will refer to the decisions of various Benches of the Tribunal on the controversy. The earliest decision is in Final Order No. A/805/93-NRB, dated 1-10-1993 in M/s. Sriram Cement Works v. Collector of Central Excise, Jaipur by one of us [Shri G.R. Sharma, Member (T)] sitting as Single Member Bench against the order of Collector (Appeals) who held that Grinding Media (Steel Balls) are not constituents of cement, the final product and are in the nature of tools covered by exclusion Clause (i) of Explanation to Rule 57A of the Rules. It was held that grinding media are used in the process of manufacture but are not in the nature of components of Plant or Machinery and that they fall under Chapter sub-heading 7307.20 which covers neither components of Plant or Machinery nor Tools, and that therefore they cannot be regarded as Tool. It was also held that there was no material to show that the use of grinding media was not an integral part of the entire process of manufacture of cement. Applying the principle in J.K. Cotton Spinning & Weaving Mills Co. Ltd., AIR 1965 SC 1310 and East End Paper Industries, 1989 (43) E.L.T. 201 SC, it was held that Modvat credit was admissible for duty paid on Grinding Media. The same Bench followed this decision in Indian Rayon & Industries Ltd. v. Collector of Central Excise, 1995 (76) E.L.T. 358 (Tribunal) observing that Steel Balls are not attached to any machine and are not Tools. The same Bench followed the above decision in Collector of Central Excise v. Cosmo Ferrites Ltd., 1996 (86) E.L.T. 227 (Tribunal) observing that Steel Balls fall under Chapter 72 of Central Excise Tariff Act, 1985, are not known to trade as Tools or Equipment and after repeated use wear out and appear in the final product, ferrite powder in traces. A two-Member Bench, including one of us (Bhat, J.) by Final Order No. A-1104/CAL/1995, dated 27-10-1995 in M/s. Associated Cement Co. Ltd. v. Collector of Central Excise, Appeal No. E-216/91 recorded that it was not stated that Steel Balls are consumed in the process of manufacture and they appear to be part of equipment used for the process of powdering by grinding raw materials like gypsum and being part of equipment are covered by exclusion Clause (i) and hence Modvat credit is not available. The attention of the Bench was not drawn to the earlier contrary decisions referred to above, nor was it argued that only equipment and not part of equipment are covered by the exclusion clause.
4. In Magnetix (India) Ltd. v. Collector of Central Excise, 1996 (86) E.L.T. 317 (Tribunal), a two-Member Bench, including Shri P.C. Jain, Member (T) who was a party to M/s. Associated Cement Co. Ltd. case, again considered the matter. The Bench observed that the Steel Balls in the process of grinding other inputs get themselves corroded and become part and parcel of the final product, namely, "Hard Ferrites" and the use of Steel Balls is in relation to manufacture of the final product and hence they are "inputs". The Bench referred to the case Electrosteel Castings Ltd. v. Collector of Central Excise, 1989 (43) E.L.T. 305, where it was observed that though Steel Balls are not fitted in the Ball Mill, the latter cannot grind without the Steel Balls in the drum and since the Steel Balls perform an essential part in the grinding by the Ball Mill, must be classed as parts of the Ball Mill and that Steel Balls fall under erstwhile Tariff Item 68 and not erstwhile Tariff Item 26AA. The Bench distinguished the decision on the ground that Steel Balls under consideration were not attached to the Ball Mill. and get corroded and become part and parcel of the final product. The Bench held that Steel Balls are not appliance or equipment but are "inputs" and approved the decision in Indian Rayon and Industries Ltd. case, 1995 (76) E.L.T. 358 (Tribunal).
5. We may also refer to the decision in Electrosteel Castings Ltd. v. Collector of Central Excise, 1989 (43) E.L.T. 305 (Tribunal). The dispute related to classification of Balls and Cylpebs, whether they were to be treated as casting (cast products) or as parts of machine. Balls have rough surfaces and such rough surfaces are required for grinding efficiency and capacity. The manufacturer took the stand that they are used over and over again and are accessories and/or equipments required for use in Ball Mills. They became identifiable as Ball Mills accessories or parts and are no longer mere castings and move out of the category of castings. It was held that they are not fitted to Ball Mill, and since the Ball Mill cannot grind without the Balls in the drum they perform an essential part in the grinding. They must be classified as parts of Ball Mill. A component, it was stated, when absent will disable a machine or appliance, must be regarded as an essential ingredient or part of the machine. Hence, they cannot attract Tariff Item 68.
6. We will first advert to classification under the old Tariff. Relevant portions of Item 26AA read as follows :-
"Item 26AA. Iron and Steel Products, the following, namely :-
(i) Semi-finished steel.... (ia) Bars, rods, coils, wires....
(ii) Plates and sheets....
(iii) Flats, skulp and strips.
(iv) Pipes and tubes....
(v) All other steel castings, not otherwise provided or specified."
(Emphasis supplied) Item 26AA was omitted with effect from 1-8-1983 by Notification 188/83 and simultaneously Item 25 was substituted with the heading. "Iron and Steel; and products thereof". The decision in Electrosteel Castings Ltd. v. Collector of Central Excise, 1989 (43) E.L.T. 305 (Tribunal) dealt with a situation prior to 1-8- 1983 when the conflict was between Tariff Item 26AA and Tariff Item 68. Steel Castings like Steel Balls are undoubtedly "Steel Products" within the meaning of the heading of Tariff Item 26AA. sub-item (v) took in"All other steel castings, not otherwise specified." It is clear that so far as Steel products known as "Steel Castings" are concerned Item 26AA was exhaustive. There could not be any Steel Casting which could not fall either under sub-items (i) to (iv) and if not, under sub-item (v). Necessarily the residuary item Tariff Item 68 was not attracted. Item attracted was 26AA(v). The decision in Electrosteel Castings Ltd. did not take into consideration the language of Item 26AA(v) and tried to highlight the alleged difference between "Steel Castings" and "parts of machines". The difference had no relevance in the context of Item 26AA(v) which was exhaustive and attracted all other Steel Castings which are parts of machines. The position did not change on 1-8-1983 since same sub-items under substituted Item 25 attracted Steel Castings of specified description and sub-item 16 took in "Castings of Iron or Steel not otherwise specified" and sub-item 16(ii) took in castings of Steel not otherwise specified. In the new Tariff, conflict, if any, in this context may be between Chapter 73 and 84. Chapter 73 of the new Tariff deals with"articles of iron and steel". Heading 73.26 deals with "other articles of iron and steel - forged or stamped, but not further worked." Sub-heading 7326.11 takes in grinding balls and similar articles of mills. Chapter 84 deals with machinery and mechanical appliances etc. and parts thereof. Heading 84.74 deals with machinery for grinding etc. Sub-heading 8474.20 takes in crushing or grinding machines. Note l(g) of Section XVI states that the Section does not cover parts of general use, as defined in Note 2 to Section XV of base metal or similar goods of plastics (Chapter 39). According to Note 2(b) of Section XVI, other parts, if suitable for use solely or principally with a particular kind of machine of the same heading are required to be classified with the machine of that kind. Note 2 states, inter alia, that throughout the Schedule expression "parts of general use" means articles of the heading of the specified headings and similar articles of other base metal. On a harmonious reading of Note l(g) of Section XVI and Note 2(a) of Section XV of the new Tariff, it is clear that articles dealt with in sub-heading 7326.11 are to be regarded as parts of general use which are excluded from Chapter 84. Steel Balls thus fall under sub-heading 7326.11.
7. Chapter 73.26 of HSN relates to "Other Articles of Iron or Steel". 7326.11 takes in "Grinding Balls and similar articles for Mills". Chapter 84.74 of HSN relates, inter alia, to "Machinery for Grinding". 8474.20 takes in "Crushing or Grinding Machines". Explanation No. B (7) of Section XVI states that "Crushing or Grinding Machines" include "Ball or rod Mills". These consist essentially of a rotating drum containing a number of balls or short rods (e.g. of steel or porcelain). The material is placed in the rotating drum and is crushed or ground by the action of the ball or rods". At page 1416 it is stated as follows:-
"Subject to the general provisions regarding the classification of parts (see the General Explanatory Note to Section XVI), parts of the machines of this heading are also classified here. However, balls for ball mills are classified according to their constituent material."
It is thus clear that under the present Tariff, Steel Balls of Ball Mill attract sub-heading 7326.11 and not Chapter 84.
8. Page 180 in volume 5 of Encyclopaedia of Chemical Technology by Kirk-Othmer, 3rd Edition deals with Portland Cements. It is explained that clinker and gypsum are fed into grinding mill which has large steel cylinders containing a charge of steel balls and rotating at about 15-20 rpm. The clinker and gypsum are ground to a fine, homogeneous powder. In para 7.7.2 of Cement Data Book by Dipl-Ing Walter H. Duda, it is stated that during the grinding process, the grinding media are subject to wear and generally some quantities of metal are absorbed by the raw materials. Hence, in white Cement, porcelain grinding media are used. The National Council for Cement and Building Materials has certified that Grinding Media "is a consumable item for manufacture of cement and slowly grinding media gets mixed up with the final product. A study on Cement Industry published by Government of India has treated grinding media in Ball Mills as consumables. The study also shows that there are guide norms for consumption of grinding media for wet grinding and dry grinding.
9. Section AA of Chapter V of the Rules deals with Modvat credit scheme. Relevant portion of Rule 57A reads thus :-
"Rule 57A. Applicability. - (1) The provisions of this section shall apply to such finished excisable goods (hereinafter referred to as the final products), as the Central Government, may by notification in the Official Gazette specified in this behalf, for the purpose of allowing credit of any duty of excise or the additional duty under Section 3 of the Customs Tariff Act, 1975 (51 of 1975), as may be specified in the said notification (hereinafter referred to as the "specific duty") paid on the goods used in or in relation to the manufacture of the said final products (hereinafter referred to as the "inputs") and for utilising the credit so allowed towards payment of duty of excise leviable on the final products, whether under the Act or under any other Act, as may be specified in the said notification, subject to the provisions of this section and the conditions and restrictions that may be specified in the notification :
XX XX XX Explanation. - For the purpose of this Rule, "inputs" includes - (a) xx xx xx (b) xx xx xx but does not include -
machines, machinery, plant, equipment, apparatus, tools or 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 XX XX XX XX"
(Emphasis supplied)
10. There is no controversy before us in regard to the aspect that Steel Balls (Grinding Media) used in Ball Mills are "inputs" used in or in relation to manufacture of Cement (the final product) within the meaning of Rule 57A of the Rules. Ball Mill is the machinery used for manufacture of Cement. Ball Mill can of course be switched on without Steel balls but it cannot perform the process of grinding without using Steel Balls in the machine. Steel balls are most essential for the process. One of manufacturing process is grinding. Grinding takes place on account of the impact of Steel Balls on the raw materials. A part of the Steel Balls on account of severe impact gets damaged and particles and pieces of Steel balls are mixed together with the powdered raw materials and become part of the final product; this takes place though not intended. However, for this reason Steel balls cannot be regarded as raw materials, though they are, to a small extent, consumed and enter the final product. It can be safely held that they are used in or at any rate, in relation to the manufacture of the final product and hence "inputs".
11. Ball machine without Steel Balls placed in it is a Machine complete in itself; it is not an incomplete Machine. Just as any complete Machine may require to be fed consumables or other goods for it to perform its functions, Ball Machine requires Steel balls to be placed inside the drum in order that it performs its functions. That does not make Steel balls components or parts of Ball Mill. They are not accessories in the sense that they are additional attachments or otherwise enhance the performance or utility of Ball Mill. They are goods the use of which in Ball Mill is essential for the latter's performance. Light is also thrown by the Note in HSN that Balls are classified according to their constituent material and not as parts. It must also be noticed that Steel balls are not attached or fixed to the Ball Mill. As pointed out, Ball Mill will commence operation and drum will start rolling or moving, but grinding will take place only if Steel Balls are present. Thus Steel Balls cannot be regarded as parts of Ball Mill. They are not, in or by themselves, machine or machinery or appliance or tools or the like as they are not self-contained or complete units or group or assembly of parts as explained in Union Carbide India Ltd. v. Collector of Central Excise -1996 (86) E.L.T. 613 (Tribunal). They are also not part of such goods as indicated already. Even assuming Steel Balls are part of machine or machinery, parts are not covered by exclusion Clause (i) of the Explanation to Rule 57A of the Rules as held in Union Carbide India Ltd. case, 1996 (86) E.L.T. 613 (Tribunal). It is thus clear that Steel Balls are "inputs" and not excluded by exclusion Clause (i) and, therefore, Modvat credit is admissible. The reasoning in Electrosteel Castings Ltd., 1989 (43) E.L.T. 305 is, with respect, not correct. The distinction drawn in Magnetix (India) Ltd. case, 1996 (86) E.L.T. 317 (Tribunal) with reference to the decision in Electrosteel Casting Ltd. case, 1989 (43) E.L.T. 305 (Tribunal) is with respect, not correct. The decision in M/s. Associated Cement Co. Ltd. (Appeal No. E/216/91) is per incurium inasmuch as the earlier decisions and relevant aspects and technical literature were not brought to the notice of the Bench which decided the appeal.
12. We agree with the view taken by Collector (Appeals) that respondent is entitled to Modvat credit of the duty paid on Steel Balls under Rule 57A of the Rules. Appeal is dismissed.