Customs, Excise and Gold Tribunal - Bangalore
Commissioner Of C. Excise vs Nagarjuna Agrichem Ltd. on 10 January, 2003
Equivalent citations: 2003(87)ECC81, 2003(160)ELT572(TRI-BANG)
JUDGMENT S.S. Sekhon, Member (T)
1. Revenue has filed this appeal against the Order of the Commissioner (Appeals), Hyderabad, who vide this impugned order has observed that the expression "used in or in relation to the manufacture of the final products, whether directly or indirectly and whether contained in the final product or not" incorporated in Rule 57B(1) of the Rules has been used to widen and expand the scope, meaning and content of the expression inputs so as to attract also goods which do not enter directly or indirectly into the finished product but are used in any activity concerned with or pertaining to the manufacture of finished goods; that paints are used in relation to the manufacture of finished goods and allowed the credit under Rule 57B of the Rules.
2. The grounds taken by the Revenue are--
"Paints are used for painting the machinery and pipeline to protect from moisture, rust and corrosion. Rule 57B(1) of the Central Excise Rules, 1944 allows credit of duty paid on the inputs used in or in relation to the manufacture of final products, whether directly or indirectly and whether contained in the final product or not and paints are mentioned at Sl. No, (ii) of Rule 57B (1) ibid. As could be seem from Rule 57B(1) that it allows credit of duty on certain inputs whereas Rule 57B(2) disallows credit of duty on certain inputs. The heading of Rule 57B is "eligibility of credit of duty on certain inputs". All the above suggests that Rule 57B is a reproduction of erstwhile Explanation to Rule 57A. Thus, the items mentioned under Rule 57B(1) do not enjoy any special status that they can be utilised in any place. As reproduced under Para 4(2) of tbe order in original, the provisions of Rule 57B impose restrictions on eligibility of inputs. The inputs have to be used in or in relation to the manufacture of final product. The final product of the respondent is pesticides and manufacture of pesticides is in no way connected with the painting of machinery. The manufacturing activity cannot be linked with the maintenance of the machinery. Hence, paints in the instant case are not used in or in relation to the manufacture of final products, viz., pesticides and insecticides. Hence the respondents are not eligible to claim modvat on paints cither under Rule 57B/57A or 57Q. Therefore, for the items to pass the test of eligibility to the benefit of modvat credit, the item should participate in the process of manufacture without which the end product cannot be manufactured.
Since the paints are used in the maintenance of machinery and pipelines, the decision of Commissioner (Appeals) vide Order-in-Appeal No. 266/2000 (V) CE, dated 21.12.2000 in allowing modvat credit, on paints is not correct in law and not sustainable."
3. We have heard both sides and the submissions and find--
(a) The learned Departmental Representative relied upon the decisions in the case of Associated Cement Co. Ltd. v. Collector of Central Excise, 1991 (55) ELT 415 (Tribunal) and in the case of Synthetic and Chemicals Ltd. v. Collector of Central Excise, Kanpur, 1997 (90) ELT 191 (Tribunal) and submitted that the items used for maintenance and upkeep of the machinery cannot be considered and cannot avail the benefit of Modvat credit as inputs under Rule 57A or 57B even if they are mentioned under Rule 57C.
(b) The learned Advocate for the Respondents submitted that the decision in the cases relied upon by the DR are with relation to cases which are decided before the introduction of Rule 57B. The decision in the case of Synthetic and Chemical Ltd. (supra) is a reference application and its rejection. He submitted that when Rule 57B specifically includes paints and when use of such paint is essential for the maintenance of the machinery and pipelines and is the production of the goods that cannot be effected. Then they should be considered to be 'used in or in relation to the manufacture of the final products'. The Counsel referred to definition of 'capital goods' under Rule 57Q and submitted that the definition under Rule 57Q is restrictive while the inputs admissible under Rule 57A, as per the use of the words "used in or in relation" would mean an enlarged scope of utilisation. He submitted that large number of items in the nature of maintenance chemical have been granted benefit of the credit under Rule 57A though the use of such chemicals was only to keep the machinery in good working order. He stressed on the use of oil and lubricants in this connection.
(c) When the item is specifically mentioned under Rule 57B and there is no contest by the Revenue that the use of such paints is not essential in the grounds taken before us. The use in relation to the manufacture of final products and finding indicating that the final product pesticide and use of paints on machinery and pipelines manufacture thereof is not based on any technical evidence. It is not an opinion of the adjudicator arrived without any valid reason. It is therefore not acceptable. If the intention was to restrict the "inputs" under Rule 57A, then that Rule would not have used the word 'used in or in relation to manufacture'. Articles which are used in maintenance of the machinery have been granted input credit under Rule 57B and by various decisions of this Tribunal. We also find no cause to deny the credit on paints in this case.
4. In view of our above findings, the Revenue's appeal is devoid of merits and is rejected.