TMI Blog1993 (9) TMI 198X X X X Extracts X X X X X X X X Extracts X X X X ..... r. 3 (2) The appellants filed declaration under Rule 57A declaring inter alia the aforesaid two items as inputs used in or in relation to the manufacture of paper. However, the Department issued a number of Show Cause Notices (reportedly within time limit prescribed) alleging that these items are part and parcel of their machinery and not corelated in relation with the manufacturing process. The Asstt. Collector confirmed the demands for reversal of Modvat Credit, holding that these items are not consumables but are used in removing water from the pulp and in drying as parts of machinery. On appeals before the Collector (Appeals), their appeals were rejected. The Collector (A) has gone through the manufacturing process and held that Wire net is mainly used to carry the layer of pulp to give the required width and to drain out the water content and the felt is used to carry the paper web, to squeeze the paper web through the roller press and further carry it up to the drier. Hence, they are essential parts of machine for processing and for making paper. Hence they are excluded as per explanation to Rule 57A and are, therefore, not eligible for Modvat benefit. On rejection of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Cement Co, - 1990 (50) E.L.T. 295 (Tri.). Our observations on the approach to be adopted in regard to such items are reproduced in the succeeding para. 5(3)(i) When an item is claimed as input used in or in relation to the manufacture of final product and this item is used in the machinery or equipment and without usage of the same, final product may not be obtained, it would be necessary to raise the pertinent question viz. whether the item is used in or in relation to the manufacture of the final product or it is used in or in relation to the functioning of the machinery or equipment or for the maintenance or upkeep of the same. If the answer is that the item is used on the machinery for functioning or for upkeep or maintenance, they cannot be said to be inputs used in or in relation to the manufacture of final product, but only as a part for functioning or for upkeep of machinery. There are many such items which we could think of such as rubber belting for conveying, felt rolls for paper making, indl. fasteners, insulated sleeves used in ingot moulds, which get worn out frequently and requiring replacement. Likewise, ramming mass and refractories are required to be applied ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t be construed to be inputs eligible for modvat credit. In view of the aforesaid position, we deem it necessary that with regard to the items before us, the pertinent question to be asked is, whether the lithographic plates and rubber blankets mounted on two cylinders of the printing machinery could be construed to be inputs used in the manufacture of final product or they are functioning as part of the machinery for the intended purpose viz. printing. Undisputedly, both these items do the job of printing; one as a printing media and another as a transfer media and they only function as parts fitted to the machinery for doing the lithographic printing. They get consumed in that process after one use or a few repeated uses. The question to be looked into is, not whether they get consumed or otherwise. The question is, whether they function as a part of the machine for the intended purpose for functioning of the machine. If the answer is yes , they cannot be said to be the inputs eligible for modvat benefit. In this view of the matter, we hold that both these inputs fitted to the machinery for performing the job of printing would get excluded and they cannot be said to be input used ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elt is classifiable under Chapter 59 relating to Textiles and cannot be treated as machine or parts of machine which are classifiable under Chapter 84 has been accepted in that decision. We also find that the Calcutta High Court have looked into Tariff classification for interpreting whether Ramming mass could be construed to be machine etc. - vide Singh Alloys and Steel Ltd. reported in 1993 (66) E.L.T. 594 (Cal.). The Calcutta High Court in that case considered the item Ramming mass to be a chemical as classifiable under the Central Excise Tariff. The items fitted as attachments on the machines as functional parts were not before them for consideration. That Court have also considered the dictionary meanings of the term machines, equipments etc. and were not solely guided by Tariff classification. We deal with this judgment elsewhere in this order. 6(3) Hence the first question to be considered is whether section notes, chapter notes and criterion for classification for levy of C.E. duty could be adopted for interpreting the terms specified in the exclusion clause of Rule 57A? 6(4) On this question, we find that there are certain questions still unanswered which we propos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . This clearly indicates that Tariff classification is for purposes of levy of C.E. duty and classification in regard to some parts of the machinery is to be determined based on the constituent material contained in me working part. On this basis, we cannot conclude that felt wire mesh are not functional parts of paper making machine. Even as per the section notes, they are parts of the machine but for purpose of Central Excise levy, they are to be classified as textile material or Copper article. 6(7) We are unable to agree with the East Regional Bench that since felt and wire net are not figuring in the machinery chapters of the Central Excise Tariff, they would not be hit by the explanation to Rule 57A. 7(1), Another consideration which prompted the East Regional Bench to revise their earlier stand is that parts of machine are not specifically covered by the exclusion clause. Though the term machinery , as per Websters dictionary, is defined as component parts of machines, it is in addition to another meaning given where it refers to any combination of things, the harmonious working of which results in a desired result. Readers Digest dictionary defines machinery inter al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and quality for paper making are brought in. They are not mobile by themselves like wooden tables considered by Gujarat High Court. But they are for exclusive use for mounting on mobile machines and their function is for processing pulp and producing paper. Hence, wire netting and felt can only be called replaceable attachments to paper machine. They cannot be dismissed as Copper article or textile material because they are classified for excise levy differently. It is also necessary to mention that chapter note itself recognises them as parts but they have been sought to be excluded specifically, because many of the components of this machine are classified as per the material content in the part. (Examples - Rubber washers/gaskets or metallic brushes). Hence, can we read such a criterion into Rule 57A for interpreting the term machine or machinery? However, much we try to go along with E.R.B., we find the stand of E.R.B. not acceptable to us. 7(2) Another argument made in the case of Straw Products decided by the East Regional Bench was that in respect of wire netting and felt, they do not get depreciation allowance under the Income-Tax law and hence they are not machinery. We ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase of Cominco Binani, where a simple observation has been made that there is no warrant to read the parts in the excluded category under Rule 57A. This observation has been made by S.R.B. in the absence of any legal basis urged before them. Hence, such an observation made without considering any arguments on legal basis cannot be taken to be a proposition of law laid down by the S.R.B. in the case of Cominco Binani. 7(5) The implication of following the ratio of judgment in Straw Product would raise the following question. If parts of machines are held to be not excluded, can we allow much parts to be brought in under Modvat scheme for assembly of machines at the factory and take the duty credit on such parts for utilisation towards the duty payable on final products produced by these machines? The obvious answer could only be no . Parts of machines will be eligible for Modvat credit and such credit can be utilised only towards payment of duty on machines assembled there from. When this is the position, can we allow Modvat credit for replacement spares brought in for upkeep of the machinery? In our view, no such distinction is called for, merely because some spares get consumed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Indian Oxygen Ltd. - 1968 (22) STC 476 (Mad.) relied upon by E.R.B. relates to welding electrodes, which were held to be not classifiable as electrical goods. That decision also does not seem to be covering the present dispute. Because welding electrodes are items used for purposes of welding and they were held to be Copper rods, which are used with electric power. On that ground, they cannot be held to be electrical goods. In the present case before us, the item wire net and felt of prescribed quality and specifications are fitted as operational parts of the paper making machine for the specific purpose, for which the machine is intended to be operated. Hence, they cannot be compared to welding electrodes. 7(7) The East Regional Bench have noted that the decisions in the case of Gujarat Alkalies Chemicals Ltd. reported in 1989 (41) E.L.T. 424 and in the case of Cominco Binani - 1990 (48) E.L.T. 283 extend Modvat benefit to titanium metal anodes and Aluminium sheets used as cathodes. Hence, the wire netting and felt also could be construed as inputs. In the case of Gujarat Alkalies Chemicals Ltd., though titanium metal anode is used in the electrolytic cell as a terminal, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that context, if cement, bricks, mortar, timber and steel structurals are brought in for erecting the plant, can Modvat Credit be allowed in respect of the duty paid on these items? Mercifully, Central Excise Tariff does not extend to levy on buildings and permanent structures. Furnace is a fitted masonry structure forming part of the steel plant. They are built upon the earth with constructional materials like Refractory bricks, ramming mass etc. Because of the fact that such furnaces are to be heat resistant, they are to be built up of refractory bricks, ramming mass and special types of clay. In the process of manufacture of steel, these constructional materials get worn out because of excessive heat and are, therefore, to be replaced. Hence they are being replaced by relining the inner surface of the furnace. In the case of Mukund Iron (supra), they claimed Modvat Credit of duty paid on refractory bricks and ramming mass as inputs used in relation to the manufacture of steel castings. We rejected this claim holding that they are constructional materials for lining or repairing the furnace and hence they are to be regarded as constructional materials for maintenance of the steel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ition of the term manufacture in Section 2(f) of the Act and for the same reason paper core would also he constituent part of paper and would thus fall within the term component part used in the notification, in so far as manufacture of paper in rolls is concerned. Paper core, however, cannot be said to be used in the manufacture of paper in sheets as component part . [emphasis applied] 8(4) From the above, we are led to believe that the Apex Court, held such paper core as an input for paper, only where paper is cleared on rolls but to treat it as an item akin to iron rollers attached to machine for rewinding paper, where paper is cleared in the form of sheets. Being part of machine, such cores were construed to be ineligible for the benefit under Notification 201/79. Hence, we feel that had the decision of the Apex Court is Star Paper Mills case been placed before the Calcutta High Court, the views of the court might possibly have been different. In any case, as we have observed in para 6(2), Calcutta High Court have not placed reliance only on Tariff classification for interpreting the term in Rule 57A; they have also considered the dictionary meaning of the term. Hence, the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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