Judgment:
1. This is an appeal against the Order in Appeal No. PCJ-147/B. III/93, dt. 7-9-1993 rejecting the appellants' appeal.
2. The appellants are manufacturers of rubber processing chemicals.
They, inter alia, bring Mafron/Freon Gas as an input under the Modvat scheme and took credit of duty paid on the aforesaid gases after filing the declaration. The deptt. objected to the credit being extended in respect of the aforesaid gases, on the ground that they are refrigerant gases and they are meant for use in the machinery as refrigerant gas and hence they are identified with the functioning of the machinery.
They therefore held that these inputs are hit by the explanation to Rule 57A of the Central Excise Rules and denied the Modvat credit.
Though the original authority imposed a penalty on the appellant for availing irregular credit and on appeal before the Collector (Appeals), the penalty has been set aside; but the reversal of the Modvat credit was confirmed. Hence the present appeal before the Tribunal.
3. Shri R.V. Salian, Manager, took us through the technical expert's report on the use of Mafron gas and Freon gas in the process of the manufacture of rubber chemicals. As per this write-up, it is indicated that for the manufacture of rubber processing chemicals, the uniform pattern is required to be carried out at a temperature of 0C to - 50C and for obtaining this temperature, chilled monoethylene glycol is to be used. They are getting monoethylene glycol as an input and it is used in the manufacture of the final product. This input is to be chilled to the required level of temperature for circulating it in the coils of the reactors and crystalliser. Only when this is done, the reaction will take place and the final product to the degree of quality can be obtained. The detailed process given in the write-up indicates the aforesaid position. He therefore pleads that these are the inputs used in relation to the manufacture of final product and Modvat credit is admissible.
4. Shri Singh the ld. JDR contends that these are only refrigerant gases and used in the reactor system as an input for the running of the machinery namely refrigerating system and hence they cannot be construed to be inputs used in relation to the manufacture of the final product. He referred to the findings of the Asstt. Collector and the Collector (A) to support their orders.
5. After hearing both sides, we find that in this case the two items in dispute are gases. They may be refrigerant gases. There is no dispute that these gases are used for chilling the glycol so as to circulate it in the reactor and the crystalliser for obtaining the required quality of the final product. Without the use of these gases, the input cannot be chilled and circulated for obtaining the desired reaction and crystallisation. It is not necessary that the inputs should be physically present in the final product. It is sufficient, if it is established that they are used in or in relation to the manufacture of the final product. They are not part of machinery or an input for maintenance or functioning of the machine. These are consumable gases used for purpose of chilling monoethylene glycol for ensuring proper chemical reaction to take place. Hence its usage is directly in relation to process of manufacture of the final product. These gases are analogous to acetylene gases used through the medium of flame tourch (a tool) and in the case of Mukund Iron & Steel, we have allowed Modvat benefit in respect of acetylene gases. Moreover, the view taken by us in the case of Kopran Ltd. vide our Order No. 615/616/93-WRB, dt.
19-4-1993 [since reported in 1993 (67) E.L.T. 377 (Tri.)] in the case of Nitrogen gas used for creating an inert atmosphere in the reactor vessel for enabling reaction to take place would also apply in this case. We therefore allow the appeal and direct the authorities to restore the Modvat credit in respect of these two inputs.