Continental Devices India Ltd. Vs. Commr. of C. Ex. - Court Judgment

Excerpt:
1. the appeal no. e/814/94-nrb is against the order dated 7-1-1994 passed by the commissioner of central excise, new delhi. the other appeal is against the order dated 25-3-1992 passed by the commissioner of central excise (appeals), new delhi upholding the order of the assistant commissioner mod-hi, new delhi holding that photomasks, fused quartzware, graphite jigs are not eligible for modvat credit under rule 57a of the central excise rules, 1944 in the manufacture of the final products of the appellants namely transistors and diodes. in the adjudication order passed by the commissioner of central excise, new delhi he had confirmed the demand for rs. 3,26,375.82 and had imposed a penalty of rs. 50,000/- on the appellants. period of demand on all the inputs is from 12-6-1988 to 19-1-1990, in the case of photomasks from 22-10-1988 to 31-1-1990. in the case of graphite jigs from 22-10-1988 to 31-1-1990 and in the case of fused quartzware is form 31-3-1989 to 15-3-1990. the case of the department is that in their declaration under rule 57g central excise rules relating to modvat credit, the appellants had included these items as stated above but the department was of the view that photomask and graphite jigs are in the nature of tools apparatus and appliance which are excluded from the article inputs by the exemption to rule 57a. the department further took the stand that fused quartzware was not mentioned at all in their declaration on 17-3-1988 as an input and the appellants in their letter dated 15-4-1991 has stated that the description of these inputs would be covered by the expression 'other article of glass' contained in the declaration, since fused quartzware is an article of glass, show cause notice was issued for denying modvat credit by the commissioner of central excise on 7-4-1993 alleging suppression of actual use of these materials by mis-declaring them as inputs. after considering their reply the commissioner confirmed the demand and imposed penalty as noted above.2. in the other appeal no. e/3491/92-nrb, the assistant commissioner passed the order on their declaration under rule 57g and it related to graphite jigs and photomask, it was found that it is used as an apparatus to take the impression of photoplates on the wafer used for making different chips and as such they also held to be appliances, and modvat denied. this order of the assistant commissioner was upheld by the commissioner (appeals).3. shri madhav rao, the-learned counsel appearing for the appellants submitted that the demand confirmed by the commissioner of central excise for rs. 3,26,375.82 is barred by limitation being beyond six months time limit under rule 57-1 central excise rules from the date of show cause notice issued by the commissioner which was on 7-4-1993 and the period in dispute being between june, 1988 to march, 1990. the learned counsel submitted that the same issue had been the subject matter of order of adjudication by the assistant collector which has resulted in the other connected appeal. there is yet another show cause notice which was issued to them in january, 1991 resulting in an assistant collector order relating to fused quartzware in appeal no.e/440/92-nrb which is also before the tribunal. therefore, it is not as if the appellants had held back particulars relating to these inputs material so as to justify the commissioner of central excise in the impugned order to invoking the longer period. the bonafide belief of the appellant that these are inputs for their final product is also supported by a certificate obtained by them from the department of electronic, government of india that these are consumable essential goods essential for the manufacturing of semiconductor devices.4. the learned counsel further referred to the detailed note regarding the function of photomask, fused quartzware and graphite jigs as given in the appeal memorandum. a photomask is a ultra glass plate with a layer of emulsion coating. photomasking is the transfer of a pattern from a mask to a wafer surface using a photo resist layer. the process involves to pattern transfers. [firstly] the mask is transferred to photo resist layer and secondly, it is transferred from the layer to the wefer surface.5. in respect of graphite jigs, they are used in the process of encapsulation and the graphite jigs provide, heat current and alignment simultaneously to the chips which gets sealed within glass tubes at a very high temperature.6. the fused quartzware are used in the process of diffusion during the manufacture of transistors and diodes which involves several cycles of exposure of the silicon wafers to high temperatures for dopping purposes. the fused quartzware items carry these silicon wafers into the furnace and are exposed to very high temperature. in the furnace number of chemicals alongwith nitrogen and oxygen gases are used for the dopping/diffusion process within the pattern which have transferred on to the silicon chips absorbed the diffusion chemical in the area under the pattern.7. the learned counsel shri madhav rao contended that the photomask as called above is intergrily connected with the manufacturing process resulting in the emergence of the final product. therefore, it should be considered eligible input for which he cited case law included the larger bench decision reported in 1996 (82) e.l.t. 575 in the case of ramakrishna steel industries v. collector of central excise wherein sand moulds and chemicals used in their preparation are held to be inputs so also he referred to the technical literature to show that quartzware is a type of glass. the central excise tariff act recognises this in chapter note 5 to chapter 70 central excise tariff act would show that glass quartzware falls within that chapter and it classified as glass. the learned counsel further relied upon the clarification received from the department of electronics to say that these items are consumable essential for the manufacture of semi-conductor devices.therefore, the department's denial of modvat credit on these inputs holding them not covered by the declaration 'other articles of glass' is not justified. functionally also, the learned counsel pleaded that with reference to their function stated above that their use is vital for the emergence of the final product and hence they are used for manufacture transistors and diodes.8. shri satnam singh, the learned departmental representative reiterated the finding of the commissioner of central excise and the commissioner (appeals) saying that these items are in the nature of appliance and equipment which are excluded from the scope of the term inputs for the purposes of rule 57a by the explanation thereunder.9. we have carefully considered the submissions made by both parties.so far as the eligibility to modvat credit of item graphite jigs is concerned, it is seen that an earlier order commissioner (appeals) in the case of the same input of the same appellant had come up for consideration in the tribunal which held in its decision reported in 1996 (83) e.l.t. 120 (tribunal) in the case of continental devices (i) ltd. v. collector of central excise, new delhi that the goods would merit consideration as appliance as one of its functions is to convert the electrical energy into the heat required for the fusion of the leads to the capsule, forming the complete diode. the tribunal observed that a jig is defined in the mcgraw hill dictionary of scientific and technical terms as "a device used to position and hold the apparatus from the machinery operating and to guide the cutting tool." the tribunal in giving this decision had considered the detailed explanation given by the learned counsel regarding the function of the jigs which was showed by means of photographs and also by producing samples on them. the tribunal further noted the argument also made before us based on clarification by the department of [electronics].the tribunal found that there was nothing to show that the explanation given by the electronics department was at the request of the assistant commissioner nor, the tribunal held, can the department of [electronics] view in the matter be considered as expert opinion necessarily to be accepted. the decision of the tribunal as above on a detailed consideration of the material before it holding that graphite jigs are more in the nature of tools and would further fall within the excluded category of inputs is fully applicable to the present appeals.therefore, denial of benefit of modvat credit on graphite jigs is correct in law and is upheld.10. as regards fused quartzware, it is seen from the detailed description of its function that the fused quartzware is used to carry silicon wafers into the furnace. it is only as a container of the wafers during their being fed into the furnace in the dopping/diffusion process. they are thus, more like crucible in a furnace. it is seen that in the case of lohia sheet products v. commissioner of central excise, moradabad, reported in 1996 (15) rlt 556, the tribunal has held that crucible is not eligible input under rule 57a holding that it is used as apparatus. their repeated use and consumable nature of otherwise of the inputs were not the conclusive factors, held the tribunal, in determining admissibility to rule 57a. it may further be noted that the larger bench in the case of union carbide india ltd. and ors. v. collector of central excise, calcutta-i and ors., reported in 1996 (15) rlt 144 has considered the scope of the excluded item under rule 57a. it is observed that almost all the expression used in the exclusion namely, machine, machinery, apparatus, plant and tool, equipment or appliances relate to full and complete assemblages which could be described as such. the common factor is the self contained and complete nature of the goods comprehended by these words. these have to be understood in the sense of a complete unit and not as a part of it.the tribunal observed "the one common thread which runs through all these definitions is that self-contained or complete nature of the goods. almost every one of the expression take in self-contained, complete units or group or assemblage of parts. none of the expressions take in mere part unless it be that the part by itself is a self-contained or complete machine, apparatus, appliance, machinery, or tool." the fused quartzware in this case answers the description of self-contained unit which is used for placing the chips in the furnace and hence it would fall within the excluded category of the inputs under rule 57a. the lower authorities were, therefore, correct in denying modvat credit on this input.11. as regards photomask, the masking operation, it has been explained is the starting process in the manufacturing process of semi-conductor chips. the electrical and performance characteristics of the semi-conductor devices are decided by the pattern on the chips and also the process of diffus-ing/dopping. the photomasking operation builds the required pattern on the semi-conductor advice chips and is the very first operation in the chips production. from the above as well as submissions made regarding its functioning noted supra, it can be reasonably concluded that the photomask is integrally connected with the manufacturing process of the semi-conductor chips. therefore, it would be covered by the expression in rule 57a of an input used in relation to the manufacture of the final product. the orders of the lower authorities denying modvat credit on photomask is, therefore, not justified and is set aside.12. there is, however, a lot of force in the appellants plea that the demand for duty as contained in the adjudication order of the commissioner of central excise, new delhi is hit by limitation, having regard to the fact that show cause notice was issued in 1993, on 7-4-1993 which was beyond six months period. show cause notice had been issued earlier also to the appellants in january, 1991 in relation to the fused quartzware and graphite jigs. the demands had been confirmed resulting in appeal before the tribunal. all these would show that there was a bonafide doubt about the eligibility or otherwise of the inputs. the opinion given by the department of [electronics] would also support of the appellants claim of bonafide belief. in such a view of the matter the contention that the demand is hit by limitation needs to be accepted and it is accordingly held that the demand being beyond six months is barred by limitation under rule 57-1 central excise rules, 1944 and consequently the penalty is also set aside. the appeals are disposed of by holding that on merits the input graphite jig and fused quartzware are not eligible for modvat credit as they fall under the excluded category of input under rule 57a of central excise rules, 1944 and to this extent the orders of the lower authorities are upheld. the input photomask is eligible for modvat credit and is not hit by the above said exclusion. denial of modvat by the lower authorities on this input is, therefore, unsustainable and it is held accordingly. for the reasons aforesaid, the demand for duty as contained in the commissioner adjudication order is hit by limitation and the penalty is also consequently set aside.

Judgment:
1. The Appeal No. E/814/94-NRB is against the order dated 7-1-1994 passed by the Commissioner of Central Excise, New Delhi. The other Appeal is against the order dated 25-3-1992 passed by the Commissioner of Central Excise (Appeals), New Delhi upholding the order of the Assistant Commissioner MOD-HI, New Delhi holding that Photomasks, Fused Quartzware, Graphite Jigs are not eligible for Modvat credit under Rule 57A of the Central Excise Rules, 1944 in the manufacture of the final products of the appellants namely Transistors and Diodes. In the adjudication order passed by the Commissioner of Central Excise, New Delhi he had confirmed the demand for Rs. 3,26,375.82 and had imposed a penalty of Rs. 50,000/- on the appellants. Period of demand on all the inputs is from 12-6-1988 to 19-1-1990, in the case of photomasks from 22-10-1988 to 31-1-1990. In the case of Graphite Jigs from 22-10-1988 to 31-1-1990 and in the case of Fused Quartzware is form 31-3-1989 to 15-3-1990. The case of the department is that in their declaration under Rule 57G Central Excise Rules relating to Modvat credit, the appellants had included these items as stated above but the department was of the view that photomask and Graphite Jigs are in the nature of tools apparatus and appliance which are excluded from the Article inputs by the Exemption to Rule 57A. The department further took the stand that fused quartzware was not mentioned at all in their declaration on 17-3-1988 as an input and the appellants in their letter dated 15-4-1991 has stated that the description of these inputs would be covered by the expression 'other article of glass' contained in the declaration, since fused quartzware is an article of glass, show cause notice was issued for denying Modvat credit by the Commissioner of Central Excise on 7-4-1993 alleging suppression of actual use of these materials by mis-declaring them as inputs. After considering their reply the Commissioner confirmed the demand and imposed penalty as noted above.

2. In the other Appeal No. E/3491/92-NRB, the Assistant Commissioner passed the order on their declaration under Rule 57G and it related to Graphite Jigs and Photomask, it was found that it is used as an apparatus to take the impression of photoplates on the wafer used for making different chips and as such they also held to be appliances, and Modvat denied. This order of the Assistant Commissioner was upheld by the Commissioner (Appeals).

3. Shri Madhav Rao, the-learned Counsel appearing for the appellants submitted that the demand confirmed by the Commissioner of Central Excise for Rs. 3,26,375.82 is barred by limitation being beyond six months time limit under Rule 57-1 Central Excise Rules from the date of show cause notice issued by the Commissioner which was on 7-4-1993 and the period in dispute being between June, 1988 to March, 1990. The learned Counsel submitted that the same issue had been the subject matter of order of adjudication by the Assistant Collector which has resulted in the other connected appeal. There is yet another show cause notice which was issued to them in January, 1991 resulting in an Assistant Collector order relating to fused quartzware in Appeal No.E/440/92-NRB which is also before the Tribunal. Therefore, it is not as if the appellants had held back particulars relating to these inputs material so as to justify the Commissioner of Central Excise in the impugned order to invoking the longer period. The bonafide belief of the appellant that these are inputs for their final product is also supported by a certificate obtained by them from the Department of Electronic, Government of India that these are consumable essential goods essential for the manufacturing of Semiconductor devices.

4. The learned Counsel further referred to the detailed note regarding the function of photomask, fused quartzware and graphite jigs as given in the appeal memorandum. A photomask is a ultra glass plate with a layer of emulsion coating. Photomasking is the transfer of a pattern from a mask to a wafer surface using a photo resist layer. The process involves to pattern transfers. [Firstly] the mask is transferred to photo resist layer and secondly, it is transferred from the layer to the wefer surface.

5. In respect of graphite jigs, they are used in the process of encapsulation and the graphite jigs provide, heat current and alignment simultaneously to the chips which gets sealed within glass tubes at a very high temperature.

6. The Fused Quartzware are used in the process of diffusion during the manufacture of transistors and diodes which involves several cycles of exposure of the silicon wafers to high temperatures for dopping purposes. The fused quartzware items carry these silicon wafers into the furnace and are exposed to very high temperature. In the furnace number of chemicals alongwith nitrogen and oxygen gases are used for the dopping/diffusion process within the pattern which have transferred on to the silicon chips absorbed the diffusion chemical in the area under the pattern.

7. The learned Counsel Shri Madhav Rao contended that the photomask as called above is intergrily connected with the manufacturing process resulting in the emergence of the final product. Therefore, it should be considered eligible input for which he cited case law included the Larger Bench decision reported in 1996 (82) E.L.T. 575 in the case of Ramakrishna Steel Industries v. Collector of Central Excise wherein sand moulds and chemicals used in their preparation are held to be inputs so also he referred to the Technical literature to show that quartzware is a type of glass. The Central Excise Tariff Act recognises this in Chapter Note 5 to Chapter 70 Central Excise Tariff Act would show that glass quartzware falls within that Chapter and it classified as glass. The learned Counsel further relied upon the clarification received from the Department of Electronics to say that these items are consumable essential for the manufacture of Semi-conductor devices.

Therefore, the Department's denial of Modvat credit on these inputs holding them not covered by the declaration 'other articles of glass' is not justified. Functionally also, the learned Counsel pleaded that with reference to their function stated above that their use is vital for the emergence of the final product and hence they are used for manufacture transistors and diodes.

8. Shri Satnam Singh, the learned Departmental Representative reiterated the finding of the Commissioner of Central Excise and the Commissioner (Appeals) saying that these items are in the nature of appliance and equipment which are excluded from the scope of the term inputs for the purposes of Rule 57A by the Explanation thereunder.

9. We have carefully considered the submissions made by both parties.

So far as the eligibility to Modvat credit of Item Graphite Jigs is concerned, it is seen that an earlier order Commissioner (Appeals) in the case of the same input of the same appellant had come up for consideration in the Tribunal which held in its decision reported in 1996 (83) E.L.T. 120 (Tribunal) in the case of Continental Devices (I) Ltd. v. Collector of Central Excise, New Delhi that the goods would merit consideration as appliance as one of its functions is to convert the electrical energy into the heat required for the fusion of the leads to the capsule, forming the complete diode. The Tribunal observed that a Jig is defined in the McGraw Hill Dictionary of Scientific and Technical Terms as "a device used to position and hold the apparatus from the machinery operating and to guide the cutting tool." The Tribunal in giving this decision had considered the detailed Explanation given by the learned Counsel regarding the function of the jigs which was showed by means of photographs and also by producing samples on them. The Tribunal further noted the argument also made before us based on clarification by the Department of [Electronics].

The Tribunal found that there was nothing to show that the explanation given by the Electronics Department was at the request of the Assistant Commissioner nor, the Tribunal held, can the Department of [Electronics] view in the matter be considered as expert opinion necessarily to be accepted. The decision of the Tribunal as above on a detailed consideration of the material before it holding that graphite jigs are more in the nature of tools and would further fall within the excluded category of inputs is fully applicable to the present appeals.

Therefore, denial of benefit of Modvat credit on graphite jigs is correct in law and is upheld.10. As regards Fused Quartzware, it is seen from the detailed description of its function that the fused quartzware is used to carry silicon wafers into the furnace. It is only as a container of the wafers during their being fed into the furnace in the dopping/diffusion process. They are thus, more like crucible in a furnace. It is seen that in the case of Lohia Sheet Products v. Commissioner of Central Excise, Moradabad, reported in 1996 (15) RLT 556, the Tribunal has held that crucible is not eligible input under Rule 57A holding that it is used as apparatus. Their repeated use and consumable nature of otherwise of the inputs were not the conclusive factors, held the Tribunal, in determining admissibility to Rule 57A. It may further be noted that the Larger Bench in the case of Union Carbide India Ltd. and Ors. v. Collector of Central Excise, Calcutta-I and Ors., reported in 1996 (15) RLT 144 has considered the scope of the excluded item under Rule 57A. It is observed that almost all the expression used in the exclusion namely, machine, machinery, apparatus, plant and tool, equipment or appliances relate to full and complete assemblages which could be described as such. The common factor is the self contained and complete nature of the goods comprehended by these words. These have to be understood in the sense of a complete unit and not as a part of it.

The Tribunal observed "the one common thread which runs through all these definitions is that self-contained or complete nature of the goods. Almost every one of the expression take in self-contained, complete units or group or assemblage of parts. None of the expressions take in mere part unless it be that the part by itself is a self-contained or complete machine, apparatus, appliance, machinery, or tool." The fused quartzware in this case answers the description of self-contained unit which is used for placing the chips in the furnace and hence it would fall within the excluded category of the inputs under Rule 57A. The lower authorities were, therefore, correct in denying Modvat credit on this input.

11. As regards photomask, the masking operation, it has been explained is the starting process in the manufacturing process of semi-conductor chips. The electrical and performance characteristics of the semi-conductor devices are decided by the pattern on the chips and also the process of diffus-ing/dopping. The photomasking operation builds the required pattern on the semi-conductor advice chips and is the very first operation in the chips production. From the above as well as submissions made regarding its functioning noted supra, it can be reasonably concluded that the photomask is integrally connected with the manufacturing process of the semi-conductor chips. Therefore, it would be covered by the expression in Rule 57A of an input used in relation to the manufacture of the final product. The orders of the lower authorities denying Modvat credit on photomask is, therefore, not justified and is set aside.

12. There is, however, a lot of force in the appellants plea that the demand for duty as contained in the adjudication order of the Commissioner of Central Excise, New Delhi is hit by limitation, having regard to the fact that show cause notice was issued in 1993, on 7-4-1993 which was beyond six months period. Show cause notice had been issued earlier also to the appellants in January, 1991 in relation to the fused quartzware and graphite jigs. The demands had been confirmed resulting in appeal before the Tribunal. All these would show that there was a bonafide doubt about the eligibility or otherwise of the inputs. The opinion given by the Department of [Electronics] would also support of the appellants claim of bonafide belief. In such a view of the matter the contention that the demand is hit by limitation needs to be accepted and it is accordingly held that the demand being beyond six months is barred by limitation under Rule 57-1 Central Excise Rules, 1944 and consequently the penalty is also set aside. The appeals are disposed of by holding that on merits the input graphite jig and fused quartzware are not eligible for Modvat credit as they fall under the excluded category of input under Rule 57A of Central Excise Rules, 1944 and to this extent the orders of the lower authorities are upheld. The input photomask is eligible for Modvat credit and is not hit by the above said exclusion. Denial of Modvat by the lower authorities on this input is, therefore, unsustainable and it is held accordingly. For the reasons aforesaid, the demand for duty as contained in the Commissioner adjudication order is hit by limitation and the penalty is also consequently set aside.