1. This is an appeal directed against the order of the Collector of Central Excise (Appeals), Bombay bearing No. R-642/BII-249/88 (File No.V-2 (CH. 72) 1012/88) dated 24-11-1988 rejecting the appellants' appeal for availment of MODVAT benefit in respect of certain inputs used in or in relation to the manufacture of iron and steel castings.
3. The appellants are engaged in the manufacture of iron and steel articles. They applied for availment of the MODVATbenefit of the following inputs, namely Acetylene gas, flourspar, binders (foundry chemicals), sleeves, graphite stopper head, fireclay, ramming mass and refractories. The department objected to the availment of MODVAT benefit in respect of the aforesaid duty paid inputs on the ground that they are not admissible under the relevant rules in MODVAT scheme. In the adjudication proceedings initiated by the Assistant Collector, it was held that these inputs are not eligible for availment of MODVAT credit and confirmed the demands raised under the show cause notices dated 3-10-1987,6-1-1987,16-4-1987, 23-4-1987, 6-7-1987, 6-10-1987, and 4-11-1987. In the said order, he allowed the MODVAT benefit in respect of duty in respect of graphite electrodes alongwith nipples to the extent of Rs. 1,27,020.60 and also Rs. 8838.00 being the credit taken on thermocuple tips. Against the said order, the appellants went in appeal before the Collector of Central Excise (Appeals), which was rejected. The present appeal is against the order of the Collector of C. Ex. (Appeals).
4. Shri T.R. Andhyarujina, the learned senior advocate for the appellants, at the outset stated that in the case of refractories, the mater has already been argued by him and the issue also has been decided in favour of the revenue under order No. 617/89 dated 4-7-89 [printed in 1990 (45) ELT 84]. Since the issue is already settled, he is not arguing with regard to the eligibility of the input benefit in respect of refractories. As per the aforesaid decision, MODVAT credit in respect of refractories is not eligible and demand in respect of the same is enforceable. However, as regards other inputs, his arguments were as under. Before dealing with each item of inputs, his general argument is that in the case of all the inputs they are very necessary for the manufacture of steel castings and they are used in or in relation to the manufacture of steel castings and it is not disputed that both inputs as well as the final product are notified under the MODVAT scheme. The dispute is only with regard to whether these will be covered by the explanation to Rule 57A of the Central Excise Rules or would be hit by the explanation.
5. Shri K.M. Mondal, the learned SDR, for the department, made the general argument that Rule 57A of the Central Excise Rules is the rule dealing with the applicability of MODVAT scheme. According to this Rule both the inputs as well as the final product are required to be notified. Even if they are notified, they should be used in or in relation to the manufacture of the final product. Even if they are so used, in or in relation to the manufacture of final product, MODVAT credit can be given only, if they are coming within the purview of explanation to Rule 57A. He, therefore, contended that the issue is to be considered in the light of the aforesaid provisions for coming to the correct conclusion.
6. In order to avoid repetition of the arguments with regard to the applicability of MODVAT credit in respect of each individual input, we purpose to deal with the arguments of both the sides and give our findings with regard to each of the input.
7. Shri T.R. Andhyarujina, the learned senior advocate for the appellants, fairly conceded that in the case of refractories, this Bench in its order No. 617/89 WRB dated 4-7-1989, while disposing of the appeal filed by the same appellants in Appeal No. E/171/88 Bom has decided the issue in favour of the revenue holding that the refractory being constructional material used in lining the furnace and other equipments is not eligible for MODVAT credit. However, with regard to ramming mass and fire clay, they are different from refractory bricks.
When this Bench pointed out that ramming mass and fire clay, even as per their write up, are used for lining the furnace and ladles for heat resistance and they also on par as refractory materials, he conceded that the ratio of the decision would be applicable to these two materials as well. In view of this position, no arguments were advanced. Therefore, following the ratio of the decision in this Bench order No. 617/89WRB dated 4-7-1989 we hold that magnesite ramming mass, fire clay and refractory bricks are not eligible for MODVAT credit and demands issued denying the MODVAT credit on these three inputs by the department are therefore sustainable.
8. Acetylene gas is used in combination with oxygen gas for removing runners and risers and excess material, which come along with castings when taken out of the sand moulds. The burning of oxygen gas and acetylene gas gives a high temperature flame. The oxygen and acetylene gas pass through the medium of a torch and in that process the runners and risers and other excess materials are separated. The learned senior advocate contended that the findings of the authorities below that they are not used in or in relation to the manufacture of castings is not correct. The allegation that it is a tool, as made out in the show cause notice is also not tenable. He contended that Acetylene is a gas which is an admitted position. Only the torch, through the medium of which the gas is passed, could be regarded as a tool. Hence the allegation contained in the show cause notice that Acetylene gas is a tool is not tenable. Since the manufacture of casting can be said to be complete only when the runners and risers are removed, acetylene gas can be said to be an input used in or in relation to the manufacture of castings as it removes the excess material. In this view of the matter, he pleaded that since this gas, by itself is not a tool and is admittedly used for removing the excess material for getting the required castings, it should be construed as an admissible input.
9. Shri K.M. Mondal, the learned SDR, on the other hand, contended that functionally it performs the job of metal cutting. Since cutting of metal is the job of a tool, it can be construed as performing the function of a tool. Admittedly acytelene flame passes through the medium of a torch, which is a tool as admitted even by the other side.
Hence it was argued by him that acetylene gas is only used with regard to the function of metal cutting through the medium of a tool and it therefore goes with the functioning of tool. In that view, it should be excluded as per the explanation to Rule 57A.10. After hearing both sides, we observe that acetylene torch is admittedly a tool. According to McGraw-Hill Dictionary of Scientific and Technical Terms, "Oxygacetylene cutting" is described as below: "The flame cutting of ferrous metals in which the preheating of the metal is accomplished with a flame produced by an oxyacetylene torch." "Oxyacetylene torch" has been described in the same dictionary as below : "An acetylene gas-mixing and burning tool that produces a hot flame for the welding or cutting of metal. Also known as acetylene torch." Acetylene gas, accoording to McGraw-Hill Encyclopedia of Scientific and Technology -" acetylene burns with oxygen to produce the highest achievable flame temperature over 3300C of any carbonoceous fuel.
Oxyacetylene flames are a major importance in the welding and cutting of metals." 11. In the context of the aforesaid technical data available, we have to now consider the question as to whether acetylene gas can be regarded as a tool or whether it is an input for tool and gets excluded from the purview of explanation to Rule 57A. We are also to consider the question as to whether the Acetylene gas is used in or in relation to the manufacture of castings. Taking this question first, we are inclined to agree with the learned senior advocate that castings cannot be said to be complete, unless the excess portion of runners and risers are removed. This unwanted portion has to be precisely cut and taken out and for that flame cutting is the one method for precise cutting of metal. Since, in that process, acetylene gas is used for removing the unwanted portion of the castings, it can be said to be used in or in relation tothemanufacture of the finished product. We, therefore, agree with the view of the learned senior advocate that Acetylene gas is used in or in relation to the manufacture of the finished product. Even as per the definition of "manufacture" as laid down in Section 2(f) of the Central Excises and Salt Act, 1944, it "includes any process incidental or ancillary to the completion of a manufactured product." Since the process of removal of unwanted material from the castings is an essential process to the completion of the manufactutre of final product, namely casting, we hold that acetylene gas has been used in relation to the manufacture of the final product.
Now, coming to the other issue, whether it could be regarded as a tool or an input for the tool, we find that acetylene gas cannot be used by itself in isolation for metal cutting. In the torch, both acetylene gas and oxygen gas get mixed and Oxyacetylene gas only is capable of producing a flame of high temperature. Hence acetylene gas by itself cannot be said to perform the function of metal cutting, unless it is used through the medium of torch, where oxygen gas also gets mixed. In view of the aforesaid position we are of the view that the acetylene gas by itself cannot be considered as a tool, though it may be used in relation to the metal cutting.
13. Now the question to be considered is whether it is to be considered as an input for the tool, namely the torch. Admittedly acetylene gas is stored in a cylinder from which the gas is drawn and passes through the torch and in that process it gets consumed. The same is the position with regard to oxygen. They are not either components or raw materials for the making of the tool. At the most, they can be construed as a consumable gas for operation of the tool to produce flame of high temperature. MODVAT credit, even by way of explanation to Rule 57A, cannot be denied because of the fact that the input happens to be a consumable, so long as it is used in or in relation to the manufacture of the final product. In our view, acetylene gas can be construed to be an input required for producing flame of high temperature, which is used in or in relation to the manufacture of the final product, namely castings. We are, therefore, of the view that MOD VAT credit is required to be extended in respect of acetylene gas.
14. These are admittedly used in the preparation of sand moulds. It was contended that these sand moulds are essentially required for the manufacture of castings and these moulds are not available for the repeated use, since they get dismantled, when the castings are taken out. In other words, they have one time use. Sand moulds and cores are prepared by mixing silica sand with various binders like resin, sodium silicate, dextrine and other foundry chemicals. The learned senior advocate contended that the department's stand that the moulds and cores are in the nature of equipments and the inputs used in the preparation of the equipment are not eligible to MODVAT is not tenable because these moulds are highly unstable. They cannot be compared to machines and other equipments of stable nature as specified in the Explanation to Rule 57A, which talks only about the machines, machinery, plant, equipment, apparatus. These are of durable nature and capable of repeated use. He also contended that the moulds which are highly unstable and are required in the process for the manufacture of castings could be regarded as intermediate goods and by virtue of Rule 57D of the Central Excise Rules, credit of duty paid on inputs used in the preparation of the moulds is required to be extended for the final product castings.
15. Shri K.M. Mondal, the learned SDR, on the other hand, contended that sand moulds are only in the nature of equipments. It is not necessary for the purpose of considering the explanation to Rule 57A, whether the equipments are capable of repeated use or of one time use.
What is required to be looked into is whether the moulds are in the nature of equipment or they fall under any other category. Admittedly in this case, moulds are the receptacle for pouring the molten metal to obtain the desired castings. They being receptacle for the castings can only be construed as equipment. According to him, equipment is an apparatus and admittedly this is an apparatus for castings and hence would get excluded under the explanation of Rule 57A. Inputs used in the preparation of these equipments are not entitled to MODVAT credit.
He also cited the Board's Tariff Advice contained in the Trade Notice No. 42.MP Iron & Steel (2)/1989 Dated April, 1989, wherein the Board have clarified that prepared binders and resins' for Foupdry moulds and cores are not eligible for MODVAT credit.
16. The learned senior advocate, in reply contended that according to McGraw Hill Dictionary, apparatus is a compound instrument designed to carry out a specific function. Sand moulds are not coming into this category. Equipment has also been defined in the dictionary as one or more assemblies capable of performing a complete function. Sand moulds do not come under this category.
17. After hearing both sides, we observe that in this case, there is no dispute with regard to use of sand moulds. Admittedly they are used in the manufacture of castings. Without sand moulds castings cannot be produced. But the dispute is only on the point whether they are excluded under Explanation to Rule 57A being in the category of equipment or apparatus. The function of sand mould is to receive molten metal and give the shape of the castings. Central Excise Tariff classifies moulding boxes for metal foundry; mould bases; moulding patterns; moulds for metal (other than ingot moulds), metal carbides, glass, mineral materials, rubber or plastics (under Chapter 84 (8480.00). Chapter 84 deals with Nuclear reactors, boilers, machinery and mechanical appliances; parts thereof. According to Section Note 5 of Section XVI, the expression 'machine' means, any machine, machinery, plant, equipment, apparatus or appliances cited in the headings of Chapter 84 or 85. We are aware that for the purpose of interpreting the terminology of the various items used under the explanation to Rule 57A they are required to be interpretated as they are. However, we cannot ignore the fact that the sand moulds and other moulds for metal are recognised in the Central Excise Tariff as coming in the category of equipment, apparatus or appliances. We also note that there is a specific exemption given to sand moulds classified under heading 84.80.
In view of this position, we are convinced that the sand moulds are in the nature of equipment or apparatus used for the purpose of castings.
It is not the case of the appellants and no arguments have been advanced before us that sand moulds go into the product stream and occur at an intermediate stage. Admittedly, they are produced independently and used for castings. Hence their arguments that it should be construed as an intermediate product occurring during the course of manufacture does not carry conviction. Even as per the provision of Rule 57D(2) the credit of duty cannot be denied on the ground that any intermediate product has come into existence during the course of manufacture of the final product. In this case, moulds cannot be considered to have come into existence during the course of manufacture of the final product. Hence the benefit of Rule 57D cannot also be extended. We, therefore, hold that binders and foundry chemicals are not eligible for MODVAT credit. The demands issued by the department denying the MODVAT credit to these inputs are, therefore, sustainable.
18. Sleeves are made out of insulating materials which are used as runners and risers in the production of castings. They are used only once in the moulds and they get burnt after the casting is made and become useless after the casting. It is therefore, urged that the sleeves are to be considered as consumables and they are to be allowed MODVAT credit. Same is the position with regard to clay graphite stopper head. It is made up of carbon and fireclay. This is used in ladle for pouring of liquid metal in mould boxes. It is fixed to one end of the rod over which fireclay sleeves are used. This is consumable and is placed over nozzle in ladle.
As seen from the aforesaid use and the nature of the inputs; we observe that in both the cases, they are used either in the mould or in the ladle. We have held that moulds and ladles come under the category of equipment or apparatus. These sleeves and stopper heads could at the most be construed as fittings in those equipments for a specific purpose required to be replaced after each heat. In this view of the matter, we hold that MODVAT benefit is not admissible with regard to these two inputs.
19. Both sides agreed that flourspar goes into the product mix. The function of the flourspar is to remove impurities. The department objected to the extension of credit only on the ground that it does not get identified in the finished product. Shri K.M. Mondal, the learned SDR, fairly conceded that the department are agreeable to extension of the MODVAT benefit and the Ministry have issued instructions in this regard. He cited the same trade notice as referred to earlier.
20. We observe that flourspar is fed into the furnace after the scrap is melted. The lime stone and flux form the basis which help in removing the impurities from metal. In view of the aforesaid position, this item of input goes directly in the manufacturing process and cannot be denied MODVAT benefit.
21. Thus summing up, while we allow the appeal with regard to acetylene gas and flourspar holding that they are eligible inputs used in the process of manufacture of steel castings, we reject the appeal with regard to the MODVAT benefit claimed in respect of other inputs.