Customs, Excise and Gold Tribunal - Tamil Nadu
Bansal Metalic Oxides vs Commissioner Of C. Excise on 26 December, 2000
Equivalent citations: 2001(74)ECC120, 2001(129)ELT135(TRI-CHENNAI)
ORDER S.L. Peeran, Member (J)
1. Both these appeals arise from Order-in-Appeal No. 183/95, dated 22-11-1995 passed by the Commissioner (Appeals) reversing the order of the Assistant Commissioner granting Modvat credit in respect of silicon carbide crucible used in the manufacture of zinc oxide. The Commissioner has taken a view that the item is only an equipment and does not aid in the manufacture of the final product, while the Assistant Commissioner on a detailed examination of the process of manufacture has taken a view that silicon carbide is used in the manufacturing process of zinc oxide and it has to be termed as an input -
(i) which helps in increasing the heat inside the crucible; and
(ii) which aids in giving zinc oxide the colour and certain other physical and chemical properties.
Further findings given by the Assistant Commissioner in Order-in-Original on the basis of manufacturing process are noted hereinbelow:-
To examine this issue the manufacturing process of Zinc Oxide and the use of Silicon Carbide crucible could be stated. The Zinc metal is broken to be the required size and charged into the running furnace and melted. It becomes liquid at a temperature of 419.5°C, and the liquid boils at a temperature of 908°C. This enormous heat is produced using furnace oil. The zinc in gaseous state takes Oxygen from the atmospheric air becomes Zinc Oxide in gaseious form. This gaseous Zinc Oxide is being sucked from the furnace to a pipeline through a hopper, with the aid of blower-cum-suction unit. The gaseous Zinc Oxide from the pipeline is then fed into a cooling section fitted with filter bags. These filter bags remove the excess air and the gaseous Zinc Oxide becomes white Zinc Oxide powder, which reaches the collection tanks, wherefrom it is bagged.
It is seen that the Silicon Carbide crucible is used in the furnace. In this case, it is an oil-fixed furnace with refractory linings in which two crucibles are kept. Above the furnace and crucible the refractory lining is made and a very small hole is left out for collecting the Zinc Oxide. The Silicon present in the Silicon Carbide crucible acts as a reducing agent in reduction of cations of Zinc in other words dimunition of positive valency, so as to make oxidation, i.e. addition of Oxygen to Zinc for easy manufacture of Zinc Oxide. It is further seen that unlike other type of crucibles, like stainless steel or cast-iron crucibles the silicon carbide in the crucible gets consumed and offer effective usage of the same, the whole crucible has to be changed. It is also seen what remains in this crucible after the manufacturing process is only fixed clay. Further steel crucibles are fitted everytime after a particular quantity of production levels by 25MT. The higher degree of melting point for Silicon at 1410°C compared to the melting point of 418°C for zinc, supports the as-sessees' claim that the product helps in increasing the heat inside the crucible is agreeable. Also the property of iridiseence is that they will product fine colours on a surface.
In the case of SAE (India) Ltd. v. Collector of Central Excise as reported in 1992 (61) E.L.T. 724 (New Delhi - CEGAT), the Tribunal held that lead used in galvanisation of M.S. Steel products was eligible for Modvat credit, even though it was not present in the final product. The Tribunal stressed that there was no requirement that inputs should be present in the final product or they should be consumed, in order to qualify for Modvat benefit. As long as they are used in or in relation to the manufacture of final product and were not specifically excluded from the scope of the benefit (like machinery, appliances etc.) Modvat credit had to be allowed.
In the case of Mukund Iron and Steel Works Ltd. v. Collector of Central Excise 1990 (48) E.L.T. 552 (Bombay-CEGAT), the appellant, a manufacturer of Iron and Steel articles, claimed Modvat credit on a number of items. For the product Refractory Bricks and other similar products, the Tribunal held that the above products, being constructional material used in lining the furnace, was not eligible for Modvat credit. However, for the product, Fluorspar which goes into the product mix and whose function was to remove impurities, the Tribunal held that since the function of Fluorspar was such that it went directly in the manufacturing process, it could not be denied the benefit of Modvat credit.
Further, as stated by the assessees, and as per the provisions clause to Rule 57A of the Central Excise Rules, 1944, there is no specific exclusion of the above product for availment of Modvat credit.
In view of the above, and placing reliance on the following case, viz., SAE (India) Ltd. v. Collector of Central Excise 1996 (61) E.L.T. 724 (T). and, Mukund Iron and Steel Works Ltd. v. Collector of Central Excise - 1990 (48) E.L.T. 552 (T), The Revenue is of the opinion that the case is covered by the judgment rendered in the case of Mukund Iron & Steel Works Ltd. v. CCE as reported in 1990 (45) E.L.T. 84, wherein refractory bricks and other similar products were considered as constructional material used in lining the furnace and held to be not eligible for Modvat credit. However, the Commissioner has not adverted to the details of manufacturing process and also to the extraction of material evidence pertaining to such manufacture as recorded in para 5 of the Order-in-Original from the Encyclopaedia of Chemicals, Biologicals, The Merck Index 1983 (X Edition), wherein the silicon carbide is described as follows :-
"Csi; Molecular weight 40.07, Carbon 29.97%, Silicone 70.03%, Sic. Made by heating coke and sane (and salt as flux) in electronic furnace. Exceedingly hard, green to bluish-black, iridescent sharp crystals; hardness = 9.5, density 3.23. Dielectric constant: 7.0 Electron mobility : Greater than 100 cm2/volt sec. Hole mobility : Greater than 20 cm2/volt sec.
Band gap energy : 2.8 ev".
The Encyclopaedia states that one of the uses of silicon carbide is in the making of refractory brick, furnace linings. In this regard, it is worthwhile to define "crucibles" which means a refractory vessel or pot in which metals are melted.
The appellants' grievance is that even the Commissioner's order impugned does not deny the fact about the silicon carbide is getting disintegrated into graphitic acid and acting as reducing agent to enable oxidation of metal zinc by removing the positive valency of the zinc metal. It is their submission that the silicon carbide in the process, acts as heat transfer media and imports certain physical and chemical properties to the final product and without which zinc oxide cannot be manufactured. The process of manufacture of zinc oxide has been explained in the following manner :-
(1) Zinc metal becomes a liquid at 419.5°C. (2) Liquid becomes gas at 908°C. (3) Oxidation of zinc metal is in gaseous state.
(4) Zinc oxide in gaseous form sucked out from the furnace to the cooling section.
Therefore, they stated that the judgment of Mukund Iron & Steel Works Ltd. (supra) is clearly distinguishable as in that case there was no involvement of the equipment in the manufacture and going into the final product. They relied on the judgment of Hindalco Industries Ltd. v. CCE as reported in 1996 (88) E.L.T. 519, wherein it was held that refractory cement and high alumina refractory cement used for lining of various furnaces so as to withstand the high temperature, thermal shock and to act as insulating material so as to conserve heat in the furnace are eligible as input vide Rule 57A of Central Excise Rules. Further reliance is also made in the case of Widia (I) Ltd. as reported in 1996 (83) E.L.T. 373, wherein this Bench held that argon gas being a technical necessity in manufacture of tools and tool tips, eligible for Modvat under Rule 57A of the C.E. Rules, the use of argon gas for providing the inert atmosphere for the necessary processing on the carbide components is a technical necessity and obviously without providing the inert atmosphere the work piece would not acquire the necessary properties. In view of this the benefit of Modvat credit in respect of argon gas has to be allowed. Further reliance is also made in the case of Star Wire (I) Ltd. as reported in 1996 (87) E.L.T. 460, wherein it was held that foundary chemicals used in the manufacture of sand moulds were to be considered as inputs under Rule 57A. They have also relied on the judgments rendered in the case of Halol Leather Cloth Manufacturing Co. as reported in 1994 (74) E.L.T. 322 and that of Indian Oxygen Ltd. as reported in 1995 (78) E.L.T. 270. In the case of Halol Leather Cloth Manufacturing Co., the Tribunal held that released paper capable of repeated use and gets conserved and utilised in the manufacture of leather cloth is required to be considered as input merely because it can be used four to five times and it does not become part of machinery but at best can be termed as transfer media. In the case of Indian Oxygen Ltd. (supra) the item regenetal and alumina pellets in the manufacture of acetylene gas and oxygen as purifying and absorbing agents, is a technical necessity and there is no averment to the contrary from the Revenue in this regard. It has been held that both the items participate in the manufacturing process, so long as an item is used in the process of manufacture and it is not covered by the excluded categories in the Explanation to Rule 57A, the benefit of Modvat credit will have to be given. Large number of citations have been referred to in the said judgment.
2. Heard Sri Bansal, partner of the appellant company for the appellants and learned SDR for the Revenue. Both sides reiterated their respective views as projected in the written submissions as well as in the impugned or der.
3. On a careful consideration of these submissions, I notice that the Assistant Commissioner has gone into great detail with regard to the process of manufacture of zinc oxide. He has noted the technical definition of silicon carbide as appearing in the Encyclopaedia of Chemicals, Biologicals. He has also noted as to how silicon carbide gets utilised in the manufacture of zinc oxide in gas form and without which the zinc oxide cannot be manufactured. The most crucial findings recorded by him, as already extracted above, which in my opinion goes to decide the case in the appellants favour. The main ground on which the Commissioner (Appeals) reversed the Order-in-Original is that the issue is covered by the judgment rendered in the case of Mukund Iron & Steel Works Ltd. v. CCE (supra). On a careful consideration of the said judgment, it is seen that the item did not go into the manufacture of final produce by getting itself consumed and helping in the production of the final product. It was acting mere as an equipment, while in the present case, the silicon carbide gets completely consumed and it helps as an oxidation agent in the manufacture of zinc oxide which is a very crucial function for production. As has been noted from all the judgments that so long as the input is a technological necessity and is required for manufacture of final product and is not an equipment, it has to be treated as an input. Therefore, reliance on several judgments made by the Assistant Commissioner, which are akin to the process in the present case, has been rightly done so and there is no illegality in that order. Further the judgments cited above also support the case of the appellants, more so, the judgment of Hindalco Industries Ltd., Widia (I) Ltd. and that of Halol Leather Cloth Manufacturing Co. The ratio of these judgments clearly applies to the facts of the present case. Therefore, the Commissioner has committed an error in following the ratio of the judgment in the case of Mukund Iron & Steel Works Ltd. However, the Commissioner does not deny the fact that silicon carbide gets consumed and offers effective usage in manufacture of the final production, which itself is sufficient to decide the case in appellants favour. Be that as it may, on my independent consideration of the manufacturing process, I am of the considered opinion that the Assistant Commissioner has correctly followed the citations in granting the benefit of Modvat credit on the item in question.
4. In that view of the matter, the impugned order is set aside and the appeals are allowed, with consequential relief, if any, as per law.