Judgment:
1. This appeal is directed against the order of the Collector of Central Excise (Appeals), Madras. Under the impugned order, the Appellants have been denied the benefit of Modvat credit in respect of grease proof paper which is used to cover the surface of the conveyor on which foam (in viscous mass) is poured for solidification. The learned Collector (Appeals), while denying the benefit has held as under :- "The meaning of the word appliance is, therefore, to be taken from the Dictionary in English language, because, wherever the definition of a word or an article is not specifically provided under a statute, the definition has to be taken from the Dictionary of the relevant language used in the statute. This view has been held by the Supreme Court and other High Courts. Page 55 of the Concise Oxford Dictionary gives the meaning of the word 'appliance' as "a thing applied as means to an end". Again Chambers Dictionary of Science and Technology, Revised edition by Collec and Dobson in page 63, states, "lying upon another member by a flat surface". The meaning of the word 'appliance' is therefore to be taken in the sense that it is a particular item lying upon another member by a flat surface, and is used in relation to manufacture of polyurethane foam which is the product of the appellants. In the present case, there is no doubt about its application, inasmuch as grease proof paper is placed on the conveyor, upon which the constituents of polyurethane form are poured, as stated in detail by the Asstt.
Collector and soon after the polyurethane foam is formed, the material is taken out and the paper therein is considered as waste.
The grease proof paper is used in order to avoid sticking of polyurethane foam on the conveyor and has no other purpose whatsoever in the manufacture of polyurethane foam. Therefore, it is very clear that grease proof paper is used as an appliance and is squarely covered by the meaning of the word appliance, as given in the Concise Oxford Dictionary and also in Chambers Dictionary of Science and Technology." 2. The learned original authority while holding against the appellants has gone by the following rationale :- "In the instant case, I find that the grease-proof paper is used to cover the surface of the conveyor. The mixture of Polyol, T.D.I, and Silicon Stabiliser is poured on the surface of the conveyor which is covered with the grease proof paper. The material solidifies soon after and becomes foam. Thus the raw materials directly going into the manufacture of polyurethane foam are Polyol, T.D.I, and Silicon, Stabiliser with Amine catalysts/stannous Octoate and Acetone acting as catalyst and solvent respectively. The greasep roof paper is used to cover surface of the conveyor on which the foam (in viscous mass) is poured for solidification. The paper is so used to avoid the material getting stuck to the surface of the conveyor. When the material gets solidified and is therefore, removed from the conveyor, the grease proof paper is also removed and discarded as a waste material. The paper once used gets 'worn out or damaged and it is therefore continuously replaced. The grease proof paper does not enter into the composition or form part of the ingredients of the final product. The paper is not consumed in the manufacture of the final product as it is only used to cover the surface of the conveyor which is one of the plant items used for producing the final product. Thus, the paper in question is not actually used in or in relation to the manufacture of the final product (polyurethane foam) as envisaged in Rule 57A of the Central Excise Rules.
3. Shri Natarajan, the learned Consultant, pleaded that the viscous mass which takes shape as foam is poured over the conveyor on which layer of grease proof paper has been put to avoid sticking of foam on the conveyor and after solidification the same is taken off the surface of the grease proof paper. He pleaded in case the layer of grease proof paper is not laid on the conveyor belt, the foam will stick to the surface of the conveyor belt and foam material as required would not become available. He pleaded that the use of inputs in question is a technical necessity. Referring to the orders of the learned original authority and the learned lower appellate authority, he pleaded that the learned lower authorities had mis-directed themselves in appreciating the scope of the term "used in or in relation to the manufacture" and which have a wide connotation and unless it could be shown that the goods fell within the excluded categories as set out under Rule 57A, the Modvat credit could not be denied. He pleaded no doubt the grease proof paper in question could be used a couple of times before it became scrap but that by itself would not be a reason for denying the benefit of Modvat credit. He pleaded that paper as such could not be considered as an appliance as held by the learned lower appellate authority in terms of the items excluded under Rule 57A. It is also not a condition precedent for grant of Modvat credit as held by the learned lower original authority that the inputs should be either contained in the finished product or should be used as an inprocess material for the manufacture of the goods. He cited the following case laws in support of his plea : 4. The learned DR relied on the ruling of this Bench in the case of C.C.E. v. Steel Authority of India Ltd. 598. In that case the Tribunal has held that the Modvat credit would not be available in the case of interleaving kraft paper used during the coiling and re-coiling of stainless steel as a protection against scratches. Taking note of the fact that these are used and re-used and the Tribunal has held that these are more in the nature of an equipment or appliance since these are used for protecting the finished product from scratches. He has, therefore, pleaded that the benefit of Modvat credit should not be allowed in respect of the goods in question.
5. We have given a careful thought to the pleas made by both the sides.
We had referred this matter for consideration to the Larger Bench, as we felt that the view taken by this Bench earlier in the case of C.C.E.v. SAIL cited supra did not appear to be in conformity with the scope of Rule 57A and the items excluded from the purview of term "input" under the said rule. The short point, therefore, that falls for consideration is whether the goods in question can be considered as an input used in or in relation to the manufacture of the finished product. We observe that so far as the use of the material is concerned, the same has to be held as a technical necessity as explained by the learned Consultant, the layer of grease proof paper has to be laid on the conveyor belt on which the foam takes shape. The foam is thereafter peeled off. In case the grease proof paper is not there, the foam, according to the learned Consultant would stick to the conveyor belt and the foam in the desired form would not emerge. So far as this use, as explained by the learned Consultant, is concerned, there is no challenge from the Revenue. The use of the grease proof paper has to be held to be in or in relation to the manufacture of the notified product under Rule 57A. The question, therefore, that has to be answered is whether by virtue of nature of the use of the product in the way it is used it can be considered to be one of the items which is excluded from the purview of Rule 57A. The scope of the term "input" and the excluded items under Rule 57A as set out in that rule is as under :- 57A. Applicability. (1) The provisions of this section shall apply to such finished excisable goods (hereinafter referred to as the "final product"), as the Central Government may, by notification in the Official Gazette, specify in this behalf, for the purpose of allowing credit of any duty of excise or the additional duty under Section 3 of the Customs Tariff Act, 1975 (51 of 1975), as may be specified in the said notification (hereinafter referred to as the "specified duty") paid on the goods used in or in relation to the manufacture of the said final products (hereinafter referred to as the "inputs") and for utilising the credit so allowed towards payment of duty of excise leviable on the final products, whether under the Act or under any other Act, as may be specified in the said notification, subject to the provisions of this section and the conditions and restrictions that may be specified in the notification : Provided that the Central Government may specify the goods or classes of goods in respect of which the credit of specified duty may be restricted.
(a) inputs which are manufactured and used within the factory of production, in or in relation to, the manufacture of final products, and (i) machines, machinery, plant, equipment, apparatus, tools or appliances used for producing or processing of any goods or for bringing about any change in any substance in or in relation to the manufacture of the final products; (ii) packaging materials in respect of which any exemption to the extent of the duty of excise payable on the value of the packaging materials is being availed of for packaging any final products; (iii) packaging materials the cost of which is not included or had not been included during the preceding financial year in the assessable value of the final products under Section 4 of the Act.
(vi) bags or sacks made out of fabric (whether or not coated, covered or laminated with any other material) woven from strips or tapes of plastics.
The learned lower appellate authority in his order has held that inasmuch as the grease proof paper does not enter into the composition or forms part of the ingredients of the final product, the same cannot be taken to have been consumed in the manufacture of the final product and this use is only with reference to the conveyor belt which is one of the items of the plant for producing the final products. We observe there is no stipulation under Rule 57A that the items to be held as inputs should go into the composition of the product or as inprocess material. The term "use in or in relation to the manufacture" have to be given a wider meaning. This position now stands settled by the various rulings of the Apex Court and also the High Courts and also that of the Tribunal. The learned lower authority's reasonings, therefore, in this regard is not sustainable in law. The learned lower authority also, it is seen, has held that the use of the grease proof paper is more in relation to the plant, since it is laid on the conveyor belt on which the material foam poured finally takes shape. We observe that the paper as used is a technical necessity for the manufacture of the product and the use of the same cannot be taken to be with reference to the plant to make it functional. This Tribunal in the case of CCE v. Steel Authority of India Ltd. reported in 1989 (43) E.L.T. 598, as mentioned in para 4, has held that interleaving kraft paper used during the coiling and recoiling of the stainless steel is more in the nature of equipment or an appliance as these are used for protecting the final product. We observe with respect that this view is not sustainable in view of the judgment of the Hon'ble Supreme Court in the case of CCE v. Eastern Paper Industries Ltd. reported in 1989 (43) E.L.T. 202 (S.C.) and the Hon'ble Supreme Court has held in that case that goods which are used till the goods are rendered fit for marketing can be taken to have been used in or in relation to the manufacture of a finished product. The words "in or in relation to the manufacture" fell for consideration before the Hon'ble Supreme Court in the case of J.K.. Cotton Mills Co. Ltd. v. STO reported in A.I.R. 1965 SC 1310 (V.C. 213) and the Hon'ble Supreme Court interpreting the words "in the manufacture" used in the context of Rule 18 framed under Section 13 of the Central Sales Tax Act, 1956 has held as under :- "The goods referred to in clause (b) of Sub-section (3) of Section 8, which a registered dealer may purchase shall be goods intended for use by him as raw materials, processing materials, machinery, plant equipment, tools, stores, spare parts, accessories, fuel or lubricants in the manufacture or processing of goods for sale or in mining or in the generation or distribution of electricity or any other form of power." Taking into consideration the scope of the excluded item, we observe that the grease proof paper cannot be considered as an apparatus or equipment used for processing of the material or for bringing about any change in any substance in or in relation to the manufacture of the final product. The paper only functions as a barrier between the conveyor belt and the material which would be solidified into foam and the same after being used for a couple of times becomes scrap to be discarded. Taking into consideration the scope of the excluded items, as set out in Rule 57A, and use of the paper, we hold that the same cannot be considered to be covered under explanation to Rule 57A under which the items excluded from the purview of Rule 57A have been set out. We observe that the West Regional Bench of the Tribunal taking note of the ruling of the North Regional Bench in their Order No.A/75/91-NRB, dated 6-2-1991 in the case of National Leather Cloth Mfg.
Co. Ltd. v. CCE, Bombay reported in 1994 (69) E.L.T. 612 had held as under :- "5. After hearing both the sides, we find that the North Regional Bench has taken the view that the release paper used in the manufacture of PVC leather cloth is an input, not hit by Explanation to Rule 57A of the Central Excises Act and hence has allowed the modvat credit. We also independently examined the technical write-up. It is observed from the write-up produced by the Ld.
advocate that run on the release papers are of various types.
Basically different types of casting paper are necessary for PVC or PU. The need for the release paper is basically related to the mechanism of adhesion and the chemical differences between a resin/plasticiser system and resin/solvent system. The principal adhesive force in the casting process is polarity. With a PVC plastisol, the over-riding polarity is that of plasticiser and essentially the type and quantity of plasticiser is the major influence in deciding release level. A PVC paper has to have enough release to be able to peel off the cast film, but sufficient adhesion to retain the film during the process without pre-release.
This is obtained by using a release agent which cross-links with the film formed and has orientated non-reactive groups at the paper surface." The West Regional Bench in the case of CCE v. Weldekar Laminates Pvt.
Ltd. reported in 1990 (49) E.L.T. 538 in the case of use of the BOPP films for the manufacture of laminate sheets has held after taking note of use of the material as under :- 7. Shri K. M. Mondal, the learned SDR, after explaining the process of manufacture and the use of the inputs in the said process indicated that the films do not form part of the final product and they only function as a separating medium between the two layers so that the two layers do not get stuck with each other, when they were subject to pressing under heat treatment. In view of this, these can be considered only as an appliance or apparatus. Though it is not disputed that these films are used in relation to the manufacture of the final product, these films being in the nature of appliance or apparatus, get excluded from the purview of the Modvat credit because of the explanation under Rule 57A. On the question of time-bar, he conceded that according to the decision of the Tribunal taken in regard to similar matters, the demand dated 16-6-1988 is wholly time-barred as per Section HA of the Central Excises and Salt Act, 1944. Likewise the demand dated 25-2-1987 is partly time-barred and hence he is not arguing on merits since the issue has already been settled by various decisions of this Tribunal. However, on merits, since the films cannot be construed as part of the finished product but they are used only for separating two layers, as a separating medium, it can only be construed as an apparatus or appliance and therefore, gets excluded from the purview because of the Explanation. The Collector (Appeals) has gone by presumption and assumption and allowed the appeal on merits. He, therefore, requested for setting aside the order of the Collector (Appeals) on merits and restoring the order of the Assistant Collector to the extent of enabling the department to recover the duty subject to the time limit prescribed in Section 11A of the Act.
8. After hearing Shri K.M. Mondal, the learned SDR, we did not call upon the learned advocate Shri A. Hidayatullah to argue.
9. We find that in this case, as seen from the order of the Assistant Collector, he has admitted that these films were given proforma credit under Rule 56A of the Rules, where the requirement is that the inputs should be used as materials or components. This benefit was allowed under the order of the Collector (Appeals) against which no appeal has been filed by the department. The Modvat scheme does not make any such stipulation. Rule 57A lays down the requirement of the use of inputs in or in relation to the manufacture of the final product. The only bar is that the items so used should not be hit by explanation to Rule 57A. The items which are sought to be excluded are machinery, equipment, apparatus, appliances etc. Hence, the only question to be considered in the case of eligibility for inputs for Modvat scheme as laid down under Rule 57A is to find out whether the input gets excluded because of the explanation. The allegation of the department is that films are apparatus or appliances. According to McGraw Hill Dictionary of Scientific and Technical Terms, "appliance" is given the meaning as below : "A piece of equipment that draws electric or other energy and produces a desired work saving or other result, such as electric heater, a radio, or an electronic range." "Apparatus' has been defined thus, in the same dictionary, as below : In the context of the scientific and technical meanings given in the recognised dictionary, the BOPP films which are nothing but films made of synthetic resins cannot be construed as either an apparatus or an equipment or an appliance. Even going by the normal understanding of the aforesaid terms, we are unable to be convinced that these films could be construed as apparatus, equipment or appliance. Moreover, seeing the samples produced of the films both before usage in lamination and after usage, we find that the film loses its identity completely and becomes akin to a translucent paper. Hence, we are convinced that these films get partly consumed in the process of manufacture of lamination sheets and lose their identity. They directly go in the process or lamination though, no doubt, they are retrieved and do not form part of the final product, they lose their identity. We do not subscribe to the view that for availing Modvat scheme the input should form part of the final product because Modvat scheme eiuis even to packing materials and the requirement is only that the inputs should be used in or in relation to the manufacture of the Final product. In view of these considerations, we find that the order of the Collector (Appeals) does not call for any interference. Incidentally we also observe that the benefit was given to these films under Rule 56A, where requirements are more restricted than the Modvat scheme and that has not been challenged by the Department, when the Collector (Appeals) held that they are inputs for producing lamination. We are, therefore, unable so appreciate the challenge now made with regard to the eligibility of the same inputs under Modvat scheme. We make this observation, in the passing, and would like to make it clear that even viewing strictly from the eligibility under Rule 57A, we are satisfied that the inputs, namely BOPP film used in the manufacture of laminates is eligible for Modvat credit. We, therefore, dismiss the appeal of the department and sustain the order of the Collector (Appeals) on merits." 6. We observe that just because the item is capable of being used repeatedly lead any reason to deny the Modvat credit. We had in the case of Cominco Binani Zinc Ltd. v. CCE reported in 1990 (48) E.L.T.283 held as under :- "The plea of the Revenue is that Aluminium sheets are parts of equipments and since equipments are excluded, parts of the same should also be taken to be excluded. No legal basis has been urged for this plea and there is no warrant to read the parts into the description of excluded category of goods under Rule 57A. No rule has been cited by the Revenue in support of this plea. It is observed that Aluminium sheets are an essential requirement in the electrolysis process and these have to be replaced from time to time after they lose their utility and the waste is sold as scrap. Use of Aluminium sheets is directly in the manufacturing process and since these cannot be treated as equipment by itself, use of the same has to be taken to be in relation to the manufacture of the specified final product under Rule 57A as in the case of Titanium Metal Anodes in respect of which Modvat credit has been held to be admissible." 7. In view of the above, we hold that the grease proof paper is eligible to Modvat credit.