Full Judgment
2. Shri V. Sridharan, learned Counsel for the petitioners explains that the modvat credit had been denied to the applicants in respect of glass beads used by them in the process of manufacture of audio-magnetic tapes. He briefly explained the manner of use of this item in the manufacturing process and stated that this is an essential ingredient for ensuring that the coating of the magnetic material on the blank tape is done uniformly. The show cause notice was issued holding that this item is in the nature of tools which are classified as tapes and not inputs as per the explanation in the Rule 57A of the Central Excise Rules. In the adjudication order, however, the Assistant Collector took the view that the benefit is not admissible as these are in the nature of tapes of milling machines. Learned Counsel, Sridharan submitted that this was a changed approach on the part of the Assistant Collector while passing the adjudication order. He pointed out that above approach is inconsistent with the specific decisions taken by the Tribunal on similar types- of manufacturing processes. Thus for instance, he referred to the Tribunal's decision in the case of Indian Rayon and Industries Ltd. v. CCE, Jaipur. In this order bearing No.A/453/94-NRB, dated 4-5-1994 it was held that the grinding balls used in cement industry for powdering clinkers to cement were held to be inputs. He also referred to the decision in the case of Allied Electronics and Magnetics Ltd. reported in 1992 (62) E.L.T. 129. He particularly referred to paragraph 14 of the said order. In view of the overwhelming trend of decisions of the Tribunal in such type of cases, he pleaded that there is a very strong prima facie case in favour of the applicants. He, therefore, requested for an unconditional stay.
3. The arguments were opposed by Shri R.K. Kapoor, learned SDR. He distinguished the case law cited by the learned Counsel relating to the grinding balls used in Cement industry. He referred to the said decision and pointed out that it was noted in that order that steel balls are not attached to the machines whereas tools are normally attached to machines. It was on this ground the Tribunal held that the said steel balls did not fall in the category of tools. He submitted that this approach would not be possible in the present case and, therefore, the benefit claimed by the applicants would not be admissible as the nature of use of the material in question in the present case is different. He referred to the discussion contained in the AC's orders and reiterated the same. He strongly pleaded that the stay requested for may be rejected.
4. We have considered the submissions. The arguments raised by the respective sides will be coming up for close examination at the time of hearing of the appeal. At the present stage where we are concerned with the waiver of predeposit of the amounts in question, we have to look into the prima facie aspects only. In that regard, we find that the applicants have referred to the decision of the Hon'ble Calcutta High Court in the case of Singh Alloys & Steel Pvt. Ltd. v. ACCE reported in 1993 (66) E.L.T. 394. In the said judgment the Hon'ble Court had, inter alia, observed that the fact that an item is used in a machine does not mean that it is a part of that machine. It was also taken note of that materials considered in that case happened to be classifiable under headings quite different from those relating to machines/machinery, etc., which are the excluded items for the purpose of 57A. Even going by the stand of the Department that the disputed items should be taken as parts of machines, we find that the question whether parts of machines would be hit by the exclusion clause of 57A or whether the exclusion would be limited to complete machines only is before the Larger Bench of the Tribunal. Even by taking that stand of the Department into account, there is a prima facie case for grant of stay.
In view of the reference to the Larger [Bench] and for other reasons, we are of the view that there is a prima facie case. We accordingly order waiver of pre-deposit of the amounts in question and stay recovery of the same pending the disposal of the appeal.