Judgment:
1. The Appellants manufacture aluminium and aluminium products. The raw materials which are required for the purpose of producing aluminium include :- These items are classified under Tariff Item 68. By virtue of Notification 201/79, dated 4-6-1979 the Central Government exempted all excisable goods on which duty of excise was leviable and in the manufacture of which goods falling udner Item 68 had been used from so much of the duty of excise leviable thereon as was equivalent to the duty of excise already paid on the inputs. The notification prescribes the procedure for the application of the notification. The Appellants were taking proforma credit in regard to the raw materials used by them in manufacturing aluminium. The unutilised credit of excise duty amounted to Rs. 1,51,874.59 as on 28-2-1982. Notification 201/79 underwent an amendment by virtue of Notification 105/82, dated 28-2-1982. After the publication of the Notification 105/82 the Department was not permitting the Appellant to take credit of the duties already paid. A show cause notice was issued on 14-6-1982 alleging that the credit had been wrongfully taken. The Asstt.
Collector, in his adjudicating order dated 24-8-1982 held that the party is not eligible for set off under Notification 201/79 because the concerned items were not "raw materials" or "components" within the meaning of Notification 105/82. The Appellate Collector of Customs rejected the Appeal holding that the three materials acted as reagents aiding chemical reactions and none of them formed part of the final product, molten aluminium or aluminium as such.
2. Shri N. Mookherjee, the Learned Counsel for the Appellants, submitted that an identical issue was considered by the Tribunal in 1987 (28) ELT 529 [Collector of Central Excise, Allahabad v. Hindustan Aluminium Corporation]. The products involved therein were Fluoride, Aluminium Fluoride, Borax and Lime.
2.1. The Tribunal considered the reaction consequent to the use of these materials and held that the use of these materials was inescapable and the manufacture of aluminium would be impossible without these chemicals and substances.
3. He also cited 1985(22) ELT 163 (Seshasayee Paper and Boards Ltd. v.CCE). In that case the Appellants therein used Aluminium, Sodium Sulphide Lye, Sodium Sulphate, Daicol (Gaur Gums) and Fluo Solid Lime.
The benefit of Notification 201/79, as amended by Notification of 105/82 was allowed. Similarly, in 1985(22) ELT 594 [Andhra Sugars Ltd. v. C.C.E., Guntur] the Tribunal considered Barium Carbonate as a necessary chemical in the manufacture of Caustic Soda by electrolytic process. He submitted that the ratio of these rulings would apply to the facts of this case.
4. Shri H.L. Verma, S.D.R., urged that the Appellants have not set out in detail the chemical reactions in the use of these items and hence the ratio of the decisions would not apply.
5. The point for consideration in this Appeal is whether the Appellants are entitled to the benefit of Notification 201/79, as amended by Notification 105/82, in the use of the chemicals Cryolite, Aluminium Fluoride and Fluorspar in the manufacture of aluminium.
6. Notification 201/79 inter alia provides for exemption of duty already paid on the inputs. The use of these three chemicals in the manufacture of aluminium has not been disputed by the Department. The Asstt. Collector was of the view that the three items set out above would not come within the meaning of 'raw materials'. It must be mentioned that there is no description of raw materials in the Notification.
7. Whether in a particular case the items used are raw materials has to be determined with reference to the facts and circumstances of the case. The Asstt. Collector took the view that these items were neither subjected to the manufacturing process nor were they part of the finished product. The Appellate Collector was also of the view that the three materials acted only as a re-agents promoting certain chemical reactions and cannot be termed as "raw materials". But as rightly urged by the Learned Counsel for the Appellants, the term "raw material" has to be understood in the normal trade usage, particularly in the industry concerned. It was submitted before us by the Appellants, that in the aluminium industry the concerned items were commonly understood and termed as "raw materials". The Annual Report of the Appellants indicate that these items have been listed as raw materials. The Hand Book of Cost Audit in the Aluminium industry published by the Institute of Cost & Works Accountants of India disclose that the items listed are raw materials. In the earlier order relating to Hindustan Aluminium the Tribunal considered that Cryolite was used to dissolve the. Alumina at the operating temperature of the bath. Aluminium Fluoride is added from time to time in order to maintain a suitable sodium. Fluor Spar helps the lowering of the melting point. It is, therefore, obvious that these items are raw materials, i.e. items which go into the manufacture of aluminium. It was urged on behalf of the Department that a raw material should be one that served as the starting point of a manufacture or technical process or that out of which something was made or makable or that may develop. If the use of these materials is inescapable and it would not be possible for manufacture of aluminium otherwise then there is no reason why the benefit of the notification should not be accorded to the Appellants especially when the notification itself did not contain any words of limitation.
8. We are of the view that it is not necessary that an input or raw material must go directly in the finished product. This position has been considered by the Tribunal in 1985 (21) ELT 901. As long as the material is consumed and utilised in a way that results or helps in the production or manufacture of the Article in which the system is engaged, it would be a raw material and an input for the finished product.
9. Applying the ratio of the decisions cited above, we hold that the impugned order cannot be sustained and the Appeal is allowed.