Pragati Paper Mills (P) Ltd. Vs. Collector of Central Excise - Court Judgment

Excerpt:
1. m/s. pragati paper mills p. ltd. have filed this appeal aggrieved with the order-in-appeal dated 31-1-1996 passed by commissioner (appeals), ghaziabad whereby he had rejected their contentions raised in their appeal filed before him in regard to the question of admissibility of modvat credit on hessian cloth and mobil oil. in doing so, he confirmed the finding to that effect, reached by the assistant commissioner of central excise, division ii, ghaziabad.2. shri r.s. pandey, learned consultant who appeared for the appellants stated that since hessian cloth is used by them as packaging material and as packaging materials are specifically included in the defition of "inputs" given in the explanation under rule 57a of the central excise rules, 1944, modvat credit would be admissible to them in respect of such material notwithstanding the fact that the particular chapter in the tariff schedule under which the same falls is excluded in notification no. 5/94, dated 1-3-1994. as regards the other item, mobil oil, the learned consultant submitted that it is used by them in lubricating the machines and machinery used by them in their * manufacturing activity. he referred to the larger bench decision in the case of shri ramakrishna steel industries v. cce reported in 1996 (82) e.l.t. 575. he placed particular stress on para 14 of the said decision where the scope of the expression 'in relation to the manufacture of the final product' has been brought out clearly. he also referred to the tribunal decision in collector of central excise v. kunal engineering co. ltd. 1992 (62) e.l.t. 560 wherein it was held that rust preventive oil which is used in relation to the manufacture of textile machinery parts is eligible for modvat credit.3. shri s.n. ojha, learned dr opposed the submissions made by the learned consultant. on the first question regarding hessian cloth he stated that since the chapter under which the material in question falls in the central excise tariff stands excluded in the schedule to the notification no. 5/94, modvat credit will not be admissible.regarding the other item mobil oil he distinguished the kunal engineering case cited by the learned consultant and stated that the rust preventive oil in that case was used on the final products themselves to prevent formation of rust therein. he also distinguished the other cases cited by the appellants in the appeal memorandum and contended that in all these cases the manner of use of the inputs in question were directly in the manufacturing process or in relation thereto. in the present case, the lubricating oil is used only in relation to the plant and machinery in which their product 'paper' is manufactured. such use cannot be treated as use in relation to the manufacture of final product. he, therefore, pleaded that the findings of the commissioner (appeals) in respect of both these items may be upheld and the appeal dismissed.4. i have considered the arguments. there is no doubt that when the relevant notification which lays down the scope of the modvat scheme by listing the inputs covered thereunder in a notification and that notification is issued in the context of rule 57a, the appellants cannot be heard to say that packaging materials being specifically covered in the inclusive definition of 'inputs' in the explanation to rule 57a of central excise rules, modvat benefit will be available even if the particular packaging material falls under a chapter which is not covered in the relevant notification, namely 5/94, dated 1-3-1994.accordingly, this part of the appeal merits rejection. i hold accordingly and confirm the order in appeal as far as this input namely, hessian cloth is concerned.5. coming to the next item, lubricating oil, it has been held by the collector (appeals) in his impugned order that this material is used neither as a fuel nor for generation of electricity. no doubt the extended coverage of the inputs in rule 57a w.e.f. 1-3-1994 specifically provided for inputs used in the aforesaid manner. but it must be remembered that these items are mentioned in the inclusive definition of inputs and hence the actual criterion to decide whether these are inputs, would be to look into the relevant provision itself which goes by the convenient term of abbreviation 'input'. this term refers in the context of rule 57a to goods used in or in relation to the manufacture of the final product. if it is established that the material or goods in question find use in the manufacture or in relation to the manufacture of the final product, the benefit cannot be denied on the only ground that such use is not as fuel or for generation of electricity. there are only certain specific uses qualifying for modvat benefit but such uses are illustrative and not exhaustive. in this connection, the learned consultant referred to the discussion on the scope of the term 'in relation to the manufacture' in the larger bench decision reported in 1996 (82) e.l.t. 575. as stated therein, the said expression is one of considerably larger import than the term "in the manufacture". again, even the scope of the expression 'in the manufacture' itself has been comprehensively dealt with by the supreme court inj.k. cotton spg. & wvg. mills co. ltd v. sto - air 1965 sc 1310. it was laid down in the said case that where any particular process is so integrally connected with the ultimate production of goods that but for that process manufacture or processing of goods would be commercially inexpedient goods required in that process would fall within the expression "in the manufacture of good". applying this test it would be seen that mobil oil is used in relation to the manufacture of the final product. the fact that it is applied or used in the machine and machinery and not directly on the raw materials etc.would not affect the position. a specific provision for covering material used as fuel or those used for generating electricity has been given to remove an ambiguity as a doubt might have been felt that use of fuel or for generation of electricity are processes anterior to the actual production of the final product. the fact that there is no such express provision in respect of lubricating oil cannot deprive them of the benefit of rule 57a if they satisfy the criterion of use in or in relation to the manufacture. in my opinion, the use of lubricating oil is in relation to the manufacture even if it is not directly in the manufacturing process as raw material. without the use of such lubricating oil in the course of manufacture of paper such manufacture would become commercially inexpedient which is one of the tests laid down in the case of j.k. cotton spg. & wvg. mills referred to above.6. for the foregoing reasons, the appeal is partly allowed insofar as the mobil oil is concerned.

Judgment:
1. M/s. Pragati Paper Mills P. Ltd. have filed this appeal aggrieved with the order-in-appeal dated 31-1-1996 passed by Commissioner (Appeals), Ghaziabad whereby he had rejected their contentions raised in their appeal filed before him in regard to the question of admissibility of Modvat credit on Hessian Cloth and Mobil Oil. In doing so, he confirmed the finding to that effect, reached by the Assistant Commissioner of Central Excise, Division II, Ghaziabad.

2. Shri R.S. Pandey, learned consultant who appeared for the appellants stated that since Hessian Cloth is used by them as packaging material and as packaging materials are specifically included in the defition of "inputs" given in the Explanation under Rule 57A of the Central Excise Rules, 1944, Modvat credit would be admissible to them in respect of such material notwithstanding the fact that the particular Chapter in the Tariff Schedule under which the same falls is excluded in Notification No. 5/94, dated 1-3-1994. As regards the other item, Mobil Oil, the learned consultant submitted that it is used by them in lubricating the machines and machinery used by them in their * manufacturing activity. He referred to the Larger Bench decision in the case of Shri Ramakrishna Steel Industries v. CCE reported in 1996 (82) E.L.T. 575. He placed particular stress on Para 14 of the said decision where the scope of the expression 'in relation to the manufacture of the final product' has been brought out clearly. He also referred to the Tribunal decision in Collector of Central Excise v. Kunal Engineering Co. Ltd. 1992 (62) E.L.T. 560 wherein it was held that rust preventive oil which is used in relation to the manufacture of textile machinery parts is eligible for Modvat credit.

3. Shri S.N. Ojha, learned DR opposed the submissions made by the learned consultant. On the first question regarding Hessian Cloth he stated that since the Chapter under which the material in question falls in the Central Excise Tariff stands excluded in the schedule to the Notification No. 5/94, Modvat credit will not be admissible.

Regarding the other item Mobil Oil he distinguished the Kunal Engineering case cited by the learned consultant and stated that the rust preventive oil in that case was used on the final products themselves to prevent formation of rust therein. He also distinguished the other cases cited by the appellants in the appeal memorandum and contended that in all these cases the manner of use of the inputs in question were directly in the manufacturing process or in relation thereto. In the present case, the lubricating oil is used only in relation to the plant and machinery in which their product 'paper' is manufactured. Such use cannot be treated as use in relation to the manufacture of final product. He, therefore, pleaded that the findings of the Commissioner (Appeals) in respect of both these items may be upheld and the appeal dismissed.

4. I have considered the arguments. There is no doubt that when the relevant Notification which lays down the scope of the modvat scheme by listing the inputs covered thereunder in a Notification and that Notification is issued in the context of Rule 57A, the appellants cannot be heard to say that packaging materials being specifically covered in the inclusive definition of 'inputs' in the Explanation to Rule 57A of Central Excise Rules, Modvat benefit will be available even if the particular packaging material falls under a Chapter which is not covered in the relevant notification, namely 5/94, dated 1-3-1994.

Accordingly, this part of the appeal merits rejection. I hold accordingly and confirm the order in appeal as far as this input namely, Hessian Cloth is concerned.

5. Coming to the next item, lubricating oil, it has been held by the Collector (Appeals) in his impugned order that this material is used neither as a fuel nor for generation of electricity. No doubt the extended coverage of the inputs in Rule 57A w.e.f. 1-3-1994 specifically provided for inputs used in the aforesaid manner. But it must be remembered that these items are mentioned in the inclusive definition of inputs and hence the actual criterion to decide whether these are inputs, would be to look into the relevant provision itself which goes by the convenient term of abbreviation 'input'. This term refers in the context of Rule 57A to goods used in or in relation to the manufacture of the final product. If it is established that the material or goods in question find use in the manufacture or in relation to the manufacture of the final product, the benefit cannot be denied on the only ground that such use is not as fuel or for generation of electricity. There are only certain specific uses qualifying for Modvat benefit but such uses are illustrative and not exhaustive. In this connection, the learned consultant referred to the discussion on the scope of the term 'in relation to the manufacture' in the larger Bench decision reported in 1996 (82) E.L.T. 575. As stated therein, the said expression is one of considerably larger import than the term "in the manufacture". Again, even the scope of the expression 'in the manufacture' itself has been comprehensively dealt with by the Supreme Court inJ.K. Cotton Spg. & Wvg. Mills Co. Ltd v. STO - AIR 1965 SC 1310. It was laid down in the said case that where any particular process is so integrally connected with the ultimate production of goods that but for that process manufacture or processing of goods would be commercially inexpedient goods required in that process would fall within the expression "in the manufacture of good". Applying this test it would be seen that Mobil Oil is used in relation to the manufacture of the final product. The fact that it is applied or used in the machine and machinery and not directly on the raw materials etc.

would not affect the position. A specific provision for covering material used as fuel or those used for generating electricity has been given to remove an ambiguity as a doubt might have been felt that use of fuel or for generation of electricity are processes anterior to the actual production of the final product. The fact that there is no such express provision in respect of lubricating oil cannot deprive them of the benefit of Rule 57A if they satisfy the criterion of use in or in relation to the manufacture. In my opinion, the use of lubricating oil is in relation to the manufacture even if it is not directly in the manufacturing process as raw material. Without the use of such lubricating oil in the course of manufacture of paper such manufacture would become commercially inexpedient which is one of the tests laid down in the case of J.K. Cotton Spg. & Wvg. Mills referred to above.

6. For the foregoing reasons, the appeal is partly allowed insofar as the Mobil Oil is concerned.