Judgment:
1. The present appeal arises from the Order of the Collector of Central Excise, Chandigarh dated 17-5-1995 by which reversal of Modvat credit to the extent of Rs. 19,56,378/- was directed to be made by the present appellants. The issue involves admissibility of Modvat credit in certain capital goods under Rule 57Q of the Central Excise Rules, 1944.
2. By the impugned order the Collector allowed Modvat credit on (i) refractory bricks, (ii) unmachined grinding media, and (iii) C.I.castings. However, he denied Modvat credit on (i) Copper, aluminium, PVC Cables, (ii) Scientific instruments, (iii) Distribution control system, (iv) Rupture Discs, (v) Filter bags and (vi) Static Converters.
3. Shri A.N. Haksar, ld. Sr. Counsel along with Shri R.C. Pandey, Advocate appeared for the appellants. Shri P.K. Jain, ld. SDR, appeared for the Department.
5. We discuss the eligibility for Modvat credit of the following items as capital goods under Rule 57Q. (i) Copper, Aluminium, PVC cables, etc. : Appellants have claimed that these cables are part of machinery/equipment used in the manufacture of cement/clinker in their factory. They have stated that copper and aluminium cables are conductors of electricity through which current is passed to drive machinery/equipment which process the raw materials for manufacture of cement. Since electrically driven systems will be incomplete without these cables and no processing of cement/clinker raw materials can take place without them and no manufacture of cement can take place, these are essential components or parts of the main machinery for manufacturing cement. We find that the question whether wires and cables are eligible capital goods on which credit could be availed under Rule 57Q have been considered in Collector of Central Excise v. Nova Udyog Limited reported in 1996 (88) E.L.T. 532 wherein it was held that electric wires and cables were eligible capital goods.
Following the ratio of the said decision we allow Modvat credit on these items under Rule 57Q. (ii) Scientific Instruments : According to the appellants, scientific instruments like resistance temperature detector (RTDS), thermocouples etc. are used to monitor the temperature at various locations in the factory so that the temperatures are controlled which is essential in the dry processing of cement. In this process, raw-mix of cement is preheated through a cyclone pre-heater tower.
Temperature of the preheated raw-mix is monitored at every stage. If temperatures are not monitored correctly, calcined materials would stick to the pre-heater tower and thus jam the instrument because of which the processing will get affected. In Geep Industrial Syndicate Ltd. v. Commissioner of Central Excise, 1996 (88) E.L.T. 753, the Tribunal had decided that the process of testing and measuring various inputs forming a dry battery cell was an essential process in the completion and marketing of the final product and, therefore, the items in question were appliances used in the process of manufacture of final products and, therefore, they will be eligible for the benefit of Modvat credit under Rule 57Q as it originally stood. Following the ratio in the said case we hold that resistance temperature detectors (RTDS) and thermocouples are essential parts of the main machinery and equipment manufacturing cement and they would be eligible for Modvat credit under Rule 57Q. (iii) Distribution Control System : It is contended on behalf of the appellants that distribution control system (DCS) is in the nature of a master brain controlling processing equipments. Output of various data are logged into this system and the starting and stopping of individual equipments are regulated through commands with the help of the distribution control system. The manufacture of good quality cement/clinker cannot be carried on without the help of distribution control system which is an essential part of machinery/equipments of the cement factory. We observe that in the case of Modi Alkalies and Chemicals Ltd. v. Collector of Central Excise, 1996 (88) E.L.T. 555, the question whether panel board having switches and other fittings could be treated as capital goods as Rule 57Q originally stood was considered. It was held in that case that switches would fall under Explanation 1(b) of Rule 57Q as it stood originally as components for producing/processing any goods. From the description of the distribution control system given by the appellants in their Memo of Appeal we note that the distribution control systems also function as switches for starting and stopping individual equipments. We, therefore, hold that distribution control systems would also be eligible for Modvat credit as capital goods under Rule 57Q as it stood originally.
(iv) Rupture Disc : The appellants have explained the functions of rupture discs as a part of the equipment which protect heavy machineries like electro precipitator (ESP) from damage when there is explosions/fire and, therefore, claimed eligibility for Modvat credit as an essential component/part of the main machines i.e. coal mill. From the description given by the appellants we find that it is at best a safety device. We are not in a position to appreciate the arguments of the appellants that because of its function rupture disc can be considered to be part of machinery/equipment which brings about a change in a substance for the manufacture of the final product. We, therefore, hold that rupture disc will not come within the definition of capital goods for purposes of Rule 57Q. (v) Filter bags : Appellants have explained that the main purpose of the filter bags in cement manufacturing plants is to vent out the process air partly or completely in order to avoid the pressurisation in the process. High pressurisation in the process affects the quality of the final product. We find that in Gwalior Sugar Co. Ltd. v. CCE, 1992 (59) E.L.T. 482 the Tribunal had taken the view that filter bag would be more appropriately treated as equipment and therefore excluded under Notification No. 217/86 and not eligible for Modvat credit as input. Having regard to the function of filter bags as explained by the appellants, we hold filter bags as eligible for Modvat credit under Rule 57Q as they can be considered an equipment used for processing of goods under clause 1(a) of definition of capital goods.
(vi) Static converters : In the Memo of Appeal appellants have explained the function of static convertors as instruments which help to regulate the speed of the main drive, cooler drive, separator drive, etc. in various processes in the kiln. Variation in speed drive is an essential part of the kiln which is part of the plant. They have further explained that variable speed drives are essential part of the main machinery for cement manufacturing and static convertors is a part of a variable speed drive. In view of these explanations we are unable to agree with the lower authority's finding that the function of static convertors is only that of a separator in a cement mill and kiln to regulate the speed of machines and, therefore, not capital goods. Having regard to their functions as explained by the appellants we hold that static convertors will also be admissible to Modvat credit as part of plant under Explanation l (a) to Rule 57Q.6. As a result we allow Modvat credit on all the six above mentioned items excepting Item No. (iv), viz., 'Rupture Disc'. The impugned order is modified to the said extent. Appeal is disposed in the above terms with consequential benefits to the appellants under law.