Judgment:
1. This is an appeal filed against the order of the Collector (Appeals), New Delhi dated 10-4-1989.
2. Initially a question arose whether the jurisdiction to hear and decide the matter lies with this Bench.
3. Both the sides submitted that this matter does not involve any question regarding classification, valuation or rate of duty. As such the matter lies within the jurisdiction of this Bench.
4. The Bench found that this submission was correct and accordingly held that the jurisdiction to hear the matter was with this Bench.
5. The learned counsel submitted that they were engaged in the manufacture of Textile Fabrics impregnated, coated, covered or laminated with plastic material. They use release paper in the process of lamination in the Textile Fabrics for which they have availed modvat credit, after filing a declaration which has been approved by the Assistant Collector.
6. Subsequently the Assistant Collector disallowed this credit on the ground that it is not an input. The release paper is an inter-leaving paper used for the purpose of providing support to the final product and does not form part of the final product and is repeatedly used in this process of manufacture.
7. The learned counsel contended that release paper is a consumable material since after some time it is required to be replaced.
8. The roll of release papers is fed through various rollers for the process of lamination; it releases itself and gets rolled on the paper winding machines.
9. This release paper is coated with silicon layer which is called as releasing agent and although the paper may be used again, it is required to be replaced after sometime.
10. It is contended that since release paper is used in relation to the manufacture of the final product it satisfies the definition of inputs under Rule 57A and is entitled to modvat credit.
11. It is also urged that it does not fall in the category of appliances which are excluded from the purview of modvat.
12. The learned counsel further stated that the silica coated release paper used as input and the plastic coated laminated fabrics finally produced by them, both have been notified under Rule 57A by Notification No. 177/86 dated 1-8-1986.
13. Further it has already been held in a number of cases that it is not necessary that an input should form integral part of the final product and it is sufficient if it is used in relation to the manufacture of the final product.
14. It was also his contention that the demand was time barred for the period prior to 27-8-1987 inasmuch as the provisions of Rule 57-I are required to be read with Section 11A as held in a number of cases by the Tribunal includingCollector v. TELCO (9) 1990 (47) E.L.T. 704 CEGAT (WRB) - Collector v. Memory Steels P. Ltd.Bakeman's Home Products P. Ltd. v. Collector (11) 1990 (48) E.L.T. 520 CEGAT (WRB) - Collector v. Bharat Containers P. Ltd. (12) 1989 (42) E.L.T. 700 CEGAT (WRB) - SM. Energy Teknik & Electronics Ltd. v. Collector 15. It was also his contention that the words in a rule are required to be interpreted in their ordinary sense in preference to scientific or technical sense.
16. It was his submission that Rule 57A excludes from the definition of inputs only those items which are in the nature of capital goods.
Generally depreciation is allowed in the Income-Tax on such items.
17. The release paper is neither known in the trade parlance as machinery/machinery plant, equipment, apparatus, tool or appliance nor it is charged to Customs duty or CVD meant for such machine/machinery, plant, equipment, apparatus, tool or appliance covered under Chapter 84-85 of Customs Tariff. On the contrary it is assessed under Chapter 48 (paper) of that Tariff.
18. It was also his contention that the words 'in relation to the manufacture' constitute a very wide term encompassing both direct and indirect uses in relation to the entire process carried on for converting any material into goods. In this connection he would like to rely on cases reported inCollector v. Gwalior Rayons Silk Mfg. (Wvg.) Co. Ltd.Gujarat Alkalies & Chemicals Ltd. v. Collector 19. It was also his submission that whereas the Assistant Collector had disallowed the credit on one ground namely that release paper does not form part of the final product, the Collector (Appeals) has confirmed the order on a different ground namely that it was hit by the exclusion clause being in the nature of an appliance/apparatus.
20. It was his contention that both Assistant Collector and Collector (Appeals) were incorrect and the modvat has been rightly availed.
21. The learned SDR stated that the learned counsel is correct in pointing out that the Assistant Collector had disallowed on one ground and the Collector (Appeals) on a different one.
22. In so far as the Assistant Collector's point regarding the material not forming part of the final product is concerned he accepts that there are several orders in favour of the counsel's point of view. He would however like to state that even if it was accepted that it was not essential for an input to become integral part of the output still the input should be of a type which is not excluded under provisions of Section 57A as held by the learned Collector (Appeals).
23. According to the department the release paper is used as an equipment/appliance and is intended for a specific purpose as indicated by the Collector (Appeals) he would only reiterate the arguments given by her.
24. It was also his contention that the show cause notice is not time barred as it was issued under Rule 57-I as this provision stood at the relevant time i.e. when no time limit was prescribed under it.
25. It was also his contention that anything which is required by a factory does not automatically become input as held in the case reported in 1990 (48) E.L.T. 552.
26. We observe that the learned Assistant Collector had erred in not considering the release paper as input merely on the ground that it did not form integral part of the final product as it has already been held in a series of Tribunal's orders then it was not necessary for a material to be considered as input to form a part of the final product.
27. As the learned DR has not contested this point and has virtually conceded it; and as it is already a settled point of law, it is not necessary for us to enter into the details of the arguments and the citations on this point.
28. As regards the second question as to whether the material could be considered as an equipment or appliance we observe that the department has not produced any material to show that the silica coated release paper as considered as appliance or equipment either in the technical field or in the commercial parlance or both.
29. The learned counsel's arguments that it is classified as paper for Customs purposes is by itself not sufficient to hold otherwise, inasmuch as an appliance or equipment could be one made of paper also.
However the issue as to what constitutes equipment/appliance has already been considered at length and decided by the Tribunal in the case of M/s. Weldeker Laminates Private Limited, reported in 1990 (49) E.L.T. 538-WRB and this order has been followed by this Bench in the case of M/s. Century Laminating Company Private Limited decided by order No. A/16/91-NRB, dated 4-12-1990.
30. Following the ratio of the above order we hold that the silica coated release paper cannot be considered as equipment/appliance and is therefore not hit by the exclusion clause.
31. In view of the above discussion, we find that the department has not been able to show that modvat credit has been wrongly availed of.
As such we are not required to go into the question of time bar and the appeal succeeds, on merits.
32. The order of the Assistant Collector and the Collector (Appeals) are set aside and the Appeal is accepted.