Judgment:
1. The appellants in this case have challenged the order of the Collector of Central Excise (Appeals), Ghaziabad dated 15-11-1994 by which a duty demand of Rs. 14,35,578.00 was confirmed against them. The dispute relates to denial of Modvat credit under Rule 57A on Evaporation Boats on the ground that the function of Evaporation Boats is similar to refractory goods used to provide protective lining against high temperatures and chemical reactions. The Evaporation Boats were, according to the lower authorities, in the nature of appliances/equipment.
2. We have heard Shri R. Nambirajan, ld. Counsel for the appellants and Shri Satnam Singh, ld. SDR for the respondent Collector.
3. Ld. Counsel for the appellants submitted that the appellants were inter alia engaged in the process of metallising/lacquering of polyester film. In the process of metallising the polyester film, the appellants were using refractory ceramic and evaporation boats for evaporating aluminium wire. The evaporator boats are used in high vacuum metallising of roll of films or for batch coating. In this operation aluminium is used as coating material. For the purpose of thermal evaporation system, evaporate boats are used since they have the property of resisting temperature up to 1500 centrigrade under vacuum. Aluminium wire is continuously fed to the boat where it is vaporised and evaporated. The thermal, mechanical and electrical conditions require the ceramic product which precisly meets the demand of this kind of application. The evaporator boats used by the appellants fulfil these conditions. After completion of metallising/lacquering certain quantity of film, ceramic evaporator boats should be replaced. Therefore evaporator boats are in the nature of consumables. Without ceramic evaporator boats it would not be possible to metallise the film. The appellants were availing the benefit of Modvat Scheme and had filed a declaration under Rule 57G specifying the inputs used in the manufacture of their final product.
In the declaration filed by the appellants under Rule 57G they had specified evaporator boat as an input for the metallised /lacquered polyester film. Though in the declaration the appellants had mentioned classification of evaporator boats under Chapter 85, the evaporator boats were assessed by the authorities under Heading 69.03. On 15-10-1993 the appellants were issued a SCN by the Department proposing to deny the Modvat credit on evaporator boats on the ground that they were used as equipments in the process of metalling polyester film.
4. The matter was adjudicated by the Assistant Collector. The Assistant Collector by the order-in-original dated 1-12-1993 rejected the appellant's contention that ceramic evaporator boats were necessary for metallising/lacquering of polyester film and, therefore, they are to be treated as inputs in terms of Rule 57A. The appellants had relied on the decision of the Calcutta High Court in the case of Singh Alloys and Steel Limited v. Assistant Collector of Central Excise reported in 1993 (66) E.L.T. 594 wherein the Hon'ble Calcutta High Court had considered in detail the provisions of Rule 57A especially the provisions of Clause (i) to Explanation to Rule 57A. The Assistant Collector held that the evaporator boats were more in the nature of appliances/equipment and hence excluded from the purview of benefit of Modvat credit as in the case of other refractory goods like dolomite, refractory cement, etc. in view of the Explanation to Rule 57A. In appeal the Collector (Appeals) held that in the declaration filed by the appellants under Rule 57G, the classification of evaporator boats has been shown under Heading 85.45 relating to machinery and which were specifically excluded from the definition of input under Rule 57A, equipment, though he accepted appellants' contention that evaporator boats were consumed in the process of metallising and lacquering of polyester films. Ld. Counsel submitted that the Collector (Appeals) had failed to appreciate that the evaporator boats imported by the appellants were in fact, classified and assessed by Customs authorities under Chapter 69 and not under Chapter 85 as were evident from the Bills of Entry. Ld. Counsel submitted that the Collector (Appeals) had decided the appeal against the appellants only on the limited ground that the appellants had classified the item under Chapter 85. He submitted that giving of incorrect heading or sub-heading Number in the declaration cannot be a ground for denying the Modvat credit so long as the nature and the character of the inputs was not in doubt. He submitted that there was no dispute about the fact that ceramic evaporator boats are used in carrying out the process of vaporising the metal and its use in metallising the process. Both the processes are essential in metallising/lacquering polyester films on which the appellants had paid duty. It cannot therefore, be denied that evaporator boat is used in or in relation to metallisation of polyester films and, therefore, Modvat credit of duty paid on the evaporator boats is allowable. He relied on the Apex Court decision in J.K. Cotton and Spinning Mills Ltd. v. Collector of Central Excise - 1965 (16) STC 563 wherein the Apex Court had held that evaporator boat used in the process of vapourising would fall within the expression 'used in the manufacture of goods'. Further, even if evaporator boats are treated as part of equipment, they are by that reason not excluded under Clause (i) to Explanation to Rule 57A which excluded machines, machinery, plant, equipment, apparatus, tools or appliances but not parts of machines, machinery, etc. Apart from this, the ld. Counsel further submitted that the issue is sequarly covered by the later decision of the Tribunal in the case of Collector of Central Excise v. Durgapur Cement Works, 1997 (90) E.L.T. 197. He also drew attention to the Larger Bench decision in Union Carbide India Limited v. Collector of Central Excise, 1996 (86) E.L.T. 613 and the decision in Raxor India Limited reported in 1996 (86) E.L.T. 669 in which it was held that evaporation boats are eligible for Modvat credit rejecting the Department's contention that evaporation boats were parts of machinery.
5. Shri Satnam Singh, ld. SDR reiterated the findings of the lower authorities and submitted that the Collector (Appeals) has correctly held that the appellants had in their declaration shown their inputs as an input cover within the Chapter sub-heading 8545 relating to machinery and equipment. Machinery and equipment was specifically excluded from the definition of input under Rule 57A. The input, evaporator boat was therefore, an equipment which fell under the excluded category under Rule 57A. As a result evaporator boat cannot be considered an eligible input for Modvat credit.
6. We have considered the submissions made on both sides. We have considered the decisions cited by the appellants in their favour. In Collector of Central Excise v. Durgapur Cement Works, supra, the question that was considered was whether steel bolts, (grinding media) were excluded by exclusion Clause (i) of Explanation to Rule 57A. The Tribunal had held that steel bolts cannot be regarded as part of ball mill as they were not a self contained or complete unit or group or assembly of parts. In that view of the matter the Tribunal had agreed with the view of the Collector (Appeals) that the assessee was entitled to Modvat credit of duty paid on steel bolts under Rule 57A. In the case of Union Carbide India Limited v. Collector of Central Excise, the Larger Bench had held that the words "in or in relation to manufacture" was used by the rule-making authority to widen the ambit of the coverage of the goods and would therefore cover goods which do not directly or indirectly enter into the finished product but are used in any activity concerned with or pertaining to the manufacture of the finished goods. In Raxor India case, supra, the Tribunal had, following the decision in Union Carbide held that engraved rollers and ceramic boards used as consumables in the manufacture of rigid, plain, metallised polyester fibre would not fall in the excluded category under Rule 57A. However, we also notice that the Tribunal had in the case of M.P. Polypropylene Limited v. Collector of Central Excise, Indore, 1996 (88) E.L.T. 730 held that evaporator boats in the form of bowls in which aluminium wires are placed for heat treatment were clearly in the nature of tools and equipments and hence not eligible for Modvat under Rule 57A. Graphite foil is used as flexible joints between evaporator boats and clamp. The Tribunal observed that these two materials were clearly in the nature of tools and equipment and have rightly been denied Modvat credit by the lower authorities invoking the Explanation to Rule 57A. We observe from the manufacturing process explained by the appellants that evaporator boats are used in the high vaccum melting of rolls of films or for patch quota.
Evaporator boats are used for the reason that they can withstand temperature up to 1500 centigrade. In roll coaters the aluminium wire is continuously fed to the boat where it is vaporised and evaporated.
From the description given by the appellants it would appear that evaporator boats are in the nature of containers into which aluminium wire is continuously fed. In the case of M.P. Polypropylene Ltd, supra, evaporator boats in the form of bowls in which aluminium wires were placed for heat treatment was considered to be tools and equipment and, therefore, not eligible for Modvat credit having regard to Clause (i) of the Explanation to Rule 57A. In the facts and circumstances of the case we feel that evaporator boats used in the case of present appellants would also fall in the category of tools and equipment.
Therefore, Larger Bench decisions in Collector of Central Excise v.Durgapur Cement Works and Union Carbide v. Collector of Central Excise (supra) will not apply to the present case. We are, therefore, in agreement with the lower authorities in holding that evaporator boats are not eligible for Modvat credit under Rule 57A having regard to the Explanation to Rule 57A.