Full Judgment
The lower Appellate authority has also reduced the penalty from Rs. 25,000/- to Rs. 2,000/-. The use of Liquid Nitrogen in the process of manufacture of Spray dried silica is as under : Basic use : to determine the N2 Surface Area in the process of manufacture in intermediate and final product; the liquid nitrogen is used for testing to arrive at the correct grade of silica. It is used at two stages - firstly at the Precipitation stage where Silica BET (N2 surface area) is controlled to ensure desired grade of silica is produced in the subsequent stages of manufacture and secondly the liquid nitrogen is used at the dryer stage where it is used for confirming the surface area of silica before packing. The total surface area of silica is measured according to the method developed by Brunauer, Emmett and Teller (BET) which is a process based on adsorption of gaseous nitrogen. The BET can never be changed till the final product. This testing is necessary to classify the silica in different grades to meet the customers specifications as each grade of silica has got a different end use.
The Flow chart of manufacture is annexed to this order (Annexure I).
2. The lower authorities have rejected the claim of the appellants for credit on Liquid nitrogen on the ground that it is used for testing after the stage of completion of manufacture (RG 1 stage) of silica and since Modvat is restricted to such goods which are used in or in relation to the manufacture of the final product, any item which is used after the final product has been fully manufactured, is not an input. However, from the flow chart and the technical literature placed on record by the appellants, I find that the liquid nitrogen is used for testing of the correct grade of silica and the grades vary according to customers specification; for example Ultrasil VN 3 is the most active silica used in shoe sole material Hawai Chappals, tyres, cable compounds and high purpose rice Hulling rollers while Ultrasil VN 2 is suitable for certain rubber compounds but is not recommended for soling material. Since different grades of silica are required for different purposes, it is absolutely essential for the appellants to test the silica to arrive at the correct grade by use of liquid nitrogen.
3. Viewed in this light, liquid nitrogen is used in or in relation to the manufacture of final product viz. sprayer high silica. It has been held by the Tribunal in the case of CCE, Patna v. Tata Engg. & Locomotive Company [1997 (92) E.L.T. 107] that Argon gas which was used by the respondents to test samples of in-process material for the manufacture of motor vehicles, was an input used in relation to the final product namely steel castings as testing was an essential process in the activity of manufacture without which the final product could not be manufactured.
4. Since I am satisfied with reference to the technical material placed before me in the form of manufacturer's catalogue and purchase orders from MRF Ltd. & Goodyear etc., that liquid nitrogen is an essential requirement for testing of the correct grade of silica and for controlling the surface area of the silica, I hold that this item is used in relation to the manufacture of the final product of the appellants and hence entitled to the benefit of Modvat credit and therefore, set aside the impugned order relating both to duty and penalty and allow the appeal with consequential relief, if any, due to the appellants in accordance with law.