Full Judgment
Considered in the light of the Tribunal's judgment as relied upon by the appellants and the Board's instruction, the order passed by the appellants and the Board's instruction, the order passed by the Asstt. Collector does not stand to reason. The same is vacated.
2. The facts of the case, in brief, are that the respondents are engaged in the manufacture of polyester film yarn falling under Chapter Heading 5402 of Central Excise Tariff. The respondents were availing Modvat credit of duty paid on refrigerant gas-mafron used as inputs under the Modvat scheme under Rule 57A. The Department alleged that mafron gas was used in chilling plant and not in the manufacturing process directly and therefore, denied the respondents herein the benefit of Modvat credit on this item. Against the order of Asstt.
Collector, the assessee went in appeal to Collector (Appeals). The Collector (Appeals) allowed the appeal of the assessee. The Department has filed the present appeal against this order of Collector (Appeals).
3. Shri Y.R. Kilaniya, the learned DR appearing for the appellant submitted that the refrigerant gas (mafron gas) is used as a device inside the chilling plant and is only a part of the plant system; that this can be used for. purpose where low temperature is required; that the Collector (Appeals) has wrongly relied upon the Tribunal's judgment in the case of Kaporan Ltd. reported in 1993 (67) E.L.T. 377. The ld.DR concluded his arguments by saying that the ratio of the decision of the Tribunal is applicable to cases where the inputs prevented from oxidation of final product. The learned DR submitted that mafron gas in the present case cannot be considered to be used in or in relation to the manufacture of the final product and therefore, the Asstt.
Collector has rightly denied the benefit of Modvat credit on this gas.
4. Shri Satya Sheel, the learned Advocate appearing for the respondents submitted that mafron gas is used for chilling molten or semi-solid polyester film yarn in the course of its manufacture; that this chilling operation is essential as without the process of chilling, polyester film yarn cannot be made. The ld. Counsel cited and relied upon the judgment of this Tribunal in the case of Kaporan Ltd. supra.
The ld. Counsel also referred to the instructions contained in Circular No. 33/33/94-CX-8, dated 4-5-1994 in which the ld. Counsel submitted that the Board has clarified that the input credit is admissible whether such input is physically present in the finished excisable product or not so long as the inputs are used in or in relation to the manufacture of the final product. The ld. Counsel therefore, submitted that the Collector (Appeals) has rightly allowed their appeal by allowing Modvat credit benefit on mafron gas. He, therefore, prayed that the appeal may be rejected.
5. Heard the submissions of both sides. On careful consideration, I find that the contention of the Department that mafron gas is only a part of the plant system is not correct inasmuch as mafron gas is used in the process of chilling molten or semi-solid polyester film yarn. I also observe that the respondents have contended that mafron gas is essential for this process and that without the use of mafron gas, manufacture of polyester film yarn is not economically viable. The contention of the appellant is that the mafron gas is used inside the chilling plant and therefore it is a device or a part of the plant system is not supported by any fact. I also find that the Collector (Appeals) while deciding the case had relied upon the ratio of this Tribunal's judgment in the case of Kaporan Ltd. The Department has tried to distinguish this case saying that the ratio of the judgment of the Tribunal in this case was applicable only to cases where the inputs prevent oxidation of the final product. I find that this is a well settled proposition of law now that the presence of the inputs in the final product is not essential to make the inputs eligible for Modvat credit. In the instant case, the admitted position is that the mafron gas is used in the process of manufacture of polyester film yarn. The admitted position is also that the mafron gas is not present in the final product but as settled by a number of decisions of the Tribunal that the presence of the inputs is not essential in the final product, I, therefore, hold that the presence of mafron gas in the final product was not essential for making mafron as an eligible input used in the process of manufacture of the final product. In the instant case, the admitted position is that the mafron gas is used for chilling the molten or semi-solid polyester film yarn. I hold that it is an input used in the manufacture of polyester filmament yarn.
6. In the result the impugned order is upheld and the appeal is rejected.