1997 (1) TMI 195 - AT - Central Excise

Modvat - Heat Transfer Oil - Silicon spray - Chemicals used in depolymerisation - Tetra Sodium Salt and Hydroquinone

Summary

Issues:
- Denial of Modvat credit on various goods such as packaging material, heat transfer oil, chemicals, and inputs used in depolymerisation.
- Eligibility of items like heat transfer oil, chemicals, silicon spray, sulphuric acid, methanol, packaging material, and inhibitors for Modvat credit.

Analysis:

1. Heat Transfer Oil:
The issue pertains to the denial of Modvat credit on heat transfer oil used in the manufacturing process. The Tribunal held that the oil is an essential input for maintaining a constant temperature required for the spinning of synthetic filament yarn. Citing precedent, the Tribunal determined that materials necessary for maintaining specific temperatures to enable chemical reactions are eligible for Modvat credit. Therefore, the Tribunal allowed Modvat credit for heat transfer oil.

2. Chemicals for Cleaning (Nitric Acid, Potassium Nitrate, Sodium Nitrate, Sodium Nitrite):
The question was whether chemicals used for cleaning equipment like jet spinnerettes qualify for Modvat credit. The Tribunal found that these chemicals are crucial for maintaining the spinnerettes' cleanliness, ensuring the proper quality of filament yarn. Relying on a prior ruling, the Tribunal concluded that such chemicals are eligible for Modvat credit as they contribute to the manufacturing process.

3. Silicon Spray:
The issue revolved around the eligibility of silicon spray as an input for Modvat credit. The Tribunal determined that silicon spray is essential for lubricating spinnerettes, facilitating the smooth passage of filament yarn. Drawing from a previous case, the Tribunal established that silicon spray, enhancing the quality of the product, qualifies for Modvat credit.

4. Sulphuric Acid and Methanol:
The dispute involved the admissibility of sulphuric acid and methanol for Modvat credit. The Tribunal found that these chemicals are used for analyzing polymer properties and adjusting process parameters, making them integral to the manufacturing process. As they are not used for excluded purposes, the Tribunal allowed Modvat credit for these chemicals.

5. Packaging Material:
The central issue was whether various packaging materials are eligible for Modvat credit. The Tribunal analyzed the specific rate of duty and the inclusion of packaging costs in the final product's assessable value. Relying on precedents and trade notices, the Tribunal concluded that the packaging materials were not excluded from Modvat credit eligibility, allowing the credit for these items.

6. Inputs used in Depolymerisation:
The question arose regarding the admissibility of chemicals used in depolymerisation for Modvat credit. The Tribunal found that these chemicals are crucial for recovering caprolactum, a raw material reintroduced into the manufacturing process. Referring to relevant rules, the Tribunal allowed Modvat credit for these chemicals.

7. Inhibitors (Tetra Sodium Salt and Hydro-quinone):
The issue involved the eligibility of inhibitors for Modvat credit. The Tribunal determined that these chemicals control the molecular weight of the polymer and are essential in the manufacturing process. As they are in-process chemicals, the Tribunal allowed Modvat credit for inhibitors.

In conclusion, the Tribunal ruled in favor of the appellant, allowing Modvat credit on all disputed items covered by the show cause notice. The impugned order was set aside, and the appeal was allowed.