Judgment:
1. Appellant is a manufacturer inter alia of Aluminium Alloy Castings and products of aluminium. The input materials used by them in the manufacture of their final products included waste and scrap of insulated cable and which had been declared under Rule 57G of Central Excise Rules, 1944. They took Modvat credit of Rs. 1,77,794.00 for such material. This was objected to by the department on the ground that only part of the inputs goes into the final product. Show cause notice was issued to the appellant for disallowance of the credit taken by them and recovery thereof under Rule 57-1. The appellant replied to the notice contesting the allegation therein. The plea was not accepted by the Deputy Collector, Faridabad who passed her order dated 24-2-1995 confirming the demand. Their appeal against the said order before the Collector (Appeals), New Delhi being unsuccessful, the present appeal has been filed.
2. Shri G.S. Agarwal, learned Counsel for the appellants submitted that the lower authorities fell in error in holding that as part of the input material, namely the PVC insulation or sheathing of the insulated cable is not used in the manufacture of the final product and only the Aluminium core or wire part of the insulated cable found such use, Modvat credit had been wrongly availed by them. This ignored the legal position envisaged under Rule 57D(1). Under that provision credit allowed in respect of any inputs shall not be denied or varied on the ground that part of the inputs is contained in any waste, refuse or by product arising during the manufacture of the final product or that the inputs have become waste or in relation to the manufacture of the final product. The input material in question consisted of 26.151 M. Tonnes of cable cutting purchased by appellant from a manufacturer of cables and the latter had given a certificate that the 21.151 M. Tonnes of cable cuttings had aluminium content of 19.498 M. Tonnes. Shri Agarwal, learned Counsel stated that this input is melted in the furnace when the PVC insulation gets burnt and the aluminium wire portion is melted and is converted into the desired final product. The Deputy Collector as well as Collector (Appeals) had wrongly held that the cases cited in support of.the defence contentions were not applicable to the appellant's case and disallowed the entire Modvat claim. No credit was allowed even for the aluminium portion of the cable cutting which had undoubtedly been used by them in their manufacture and formed part of their final product. It was held that apportionment of credit was not permissible as part of the input his not capable of being used in or in relation to the manufacture of final product and that there was no option but to deny the credit on the whole of the material. Learned counsel submitted that in the cases cited, namely Varuna Sulphonators Pvt. Ltd. v. Union of India -1993 (68) E.L.T. 42 (Allahabad High Court) and Detergents India Ltd. v. Collector of Central Excise, Hyderabad -1992 (61) E.L.T. 310 though part of the quantity of the input material was contained in the by product Modvat credit was held to be admissible for the entire quantity of input material taken into use.
3. The arguments were resisted by the learned Departmental Representative who supported the impugned order. The PVC insulation portion was not used in the manufacture of the final product and it was not possible to apportion the duty amount in respect of the aluminium.
Part of the cable cuttings credit had been rightly disallowed for the entire quantity.
4. I have considered the submissions. I readily agree with the contention raised in support of the appeal that the lower authorities had not correctly applied Rule 57D(1) to the appellant's case. The input declared by them was waste and scrap of insulated cable and cable scrap. Insulated scrap is a single material and both the Deputy Collector and Collector (Appeals) fell in error in coming to the conclusion that as PVC is not capable of being used in the manufacture of finished product and as Modvat credit has been claimed on such PVC portion of the material also and as apportionment of duty paid on such PVC portion was not possible. Modvat credit had to be denied on the whole of the material. As the declared input was waste and scrap, PVC portion of it was not separately indicated and no credit was claimed on PVC portion separately, therefore it was wrong on the part of the lower authorities to hold that credit was claimed for PVC portion also. Such PVC is not to be treated as having a separate identity of its own in the insulated cable. It is part of a composite product. The appellants had not taken Modvat credit with reference to the Aluminium content only. The department would have been justified in objecting to the credit taken or perhaps more appropriately to excess credit taken if they had declared aluminium wire and scrap for which credit is admissible with reference to its weight but actually taken the credit on the basis of the weight of waste and scrap including the non-aluminium portion in the form of PVC, inflating the weight of the input material beyond the declared and entitled aluminium metal. In the present case, as stated earlier, the Modvat declaration was not of aluminium waste and scrap but of insulated cable and cable scrap and Modvat credit was taken of the duty paid thereon by the manufacturer-supplier of the scrap. It was not taken with reference to the weight of the metal scrap but with reference to the duty paid in the cable scrap. The insulated cable waste and scrap, as such was the input which was used in the manufacture of the final product. Rule 57A which is the main provision laying down the eligibility criterion for grant of Modvat benefit provides for the credit of duty paid on the inputs used in or in relation to the manufacture of the final product for the purpose of paying the duty on such final product. The input, in the present case is the waste and scrap of insulated cable and cable cuttings. It is not the aluminium portion alone. What is received as the input by the appellants is such scrap and duty has been paid on such scrap which has been taken as credit. Without putting such scrap to the manufacturing process, the final product cannot be manufactured.
If in the process, the PVC portion had to be burnt away and the aluminium portion retained to take part in the manufacturing process, the earlier process of melting the cable waste and scrap cannot be treated as a separate and independent process, unconnected with the manufacture of the final product. The PVC portion of the cable waste and scrap becoming a waste in relation to the manufacture of the final product is not a disability or disqualification for Modvat availment in view of the specific provisions of Rule 57D. It was not correct for the Collector (Appeals) to hold that Rule 57D(1) would have been applicable only if the inputs were made only of aluminium cable and, during the course of manufacture of the final product, some waste had arisen.
5. In the two cases cited by the learned counsel, the entire quantity of the input material was taken into use. Part of it was used up in the manufacture of the final product and part of it made up a by product, spent acid. It was held that credit cannot be restricted to the quantity of inputs referable to the final product manufactured. As held by me above, the input material in the present case has to be treated as used in a continuos manufacturing operation and not compartmentalised into melting the cable waste to remove the PVC portion and then carrying out the manufacturing process with added metals and alloys for obtaining the final product. In that view of the matter, the entire quantity of cable waste and scrap is to be taken as used in the manufacture of the final product and accordingly the ratio of these two decisions will squarely apply and the appeal deserves to be allowed.
6. Incidentally, before parting with the matter, I would like to observe that the attempt by the departmental authorities to treat part of the composite product, cable waste as not used in the manufacture of the final product as the same, namely PVC portion is not capable of being used in the final product is out of tune with the general practice of the department in respect of Modvat credit allowed on inputs received in containers which have contributed to their assessable value. In such cases, part of the duty on such inputs is attributable to the cost of such containers. All the same, when the inputs are used in the manufacture of final products, credit allowed is of the entire duty paid on the inputs and not restricted to the duty calculated with reference to the value of the contents actually used, thought the containers are not used, being also not capable of being used for the manufacture of the final product.