The Commissioner of Central Excise,Coimbatore v. Customs, Excise & Gold (Control) Appellate Tribunal

IN THE HIGH COURT OF JUDICATURE AT MADRASDated : 24.01.2008Coram :THE HONOURABLE MR.JUSTICE K.RAVIRAJA PANDIANandTHE HONOURABLE MRS.JUSTICE CHITRA VENKATARAMANReference Case Petitions Nos.49 to 56 of 2001The Commissioner of Central Excise,Coimbatore.Petitioner in all the casesvs.1. Customs, Excise & Gold (Control)Appellate Tribunal South Zonal Bench, Shastri Bhavan Annexe, Chennai.2. M/s. The Madras Aluminium Company Ltd., P.B. No.4, Mettur Dam 636 402.Respondents in all the casesReference Case petitions filed under Section 35H(1) of theCentral Excise Act, 1944 against the Final Order passed by theCustoms, Excise & Gold (Control) Appellate Tribunal (South ZonalBench), Shastri Bhavan Annexe, Chennai dated 08.12.2000 made in orderNo.1767, 1772, 1771, 1768, 1773, 1774, 1770 and 1769/2000 respectivelyagainst the order of the Assistant Commissioner of Central Excise,Salem Division, Salem dated 16.05.1996 order in OriginalC.No.V/76/30/8/96-T5(S).No.112/96), dated 01.04.97 inC.No.V/76/30/131/96 T5 (SL.No.19/97) dated 13.11.1997 inC.No.V/76/30/76/96-T5(SL.No.95/97) and dated 08.01.98 inC.No.V/76/30/125/97-T5 (SL.No.1/98) respectively against the order ofthe Commissioner of Customs & Central Excise (Appeals), Cantonment,Trichy dated 30.10.98 made in Appeal.Nos.565/96, 254/97, 59/98 &146/98.For Appellants:Mr.T.S.Sivagnanam, SCGSCFor Respondent 2:Mr.N.Prasad, forMr.N.Inbarajan https://hcservices.ecourts.gov.in/hcservices/ ORDERK.RAVIRAJA PANDIAN, J.These reference case petitions are filed under section 35H(1) ofthe Central Excise Act, 1944. The assessee, the Madras AluminiumCompany Ltd., is manufacturer of Aluminium and articles thereoffalling under Chapter Heading No.76 of the Central Excise Tariff Act,1985. It availed the credit of duty on 40 items to the tune ofRs.77,21,450.41 declaring the same as inputs under Rule 57A of theCentral Excise Rules, 1944, on the premise that the inputs were usedin or in relation to the manufacture of final products. Show causenotices were issued proposing denial of Modvat credit and impositionof penalty inasmuch as the said goods were not considered as inputs interms of Rule 57A of the Central Excise Rules. The AssistantCommissioner, by his order in original in Sl. No.112/96 dated16.05.1996, Sl. No.19/97 dated 01.04.1997, Sl. No.95/97 dated13.11.1997 and Sl. No.1/1998 dated 08.01.1998 disallowed the credit ofRs.75,80,575.68 and allowed the remaining credit in respect oflubricating oil. In respect of the issues which were disallowed bythe lower authorities, the assessee filed an appeal and in respect ofthe issues which were allowed, the revenue filed appeals to theCommissioner of Appeals (Trichy) who by his order dated 30.10.1998upheld the order in original in respect of certain goods and allowedcredit in respect of the remaining goods. Against that order, both,the department and the assessee filed appeals before the CEGAT. TheCEGAT by its order dated 08.12.2000 allowed the Modvat credit inrespect of certain goods and in respect of certain other itemsremanded the matter back to the authorities concerned for de novaconsideration. In respect of the remanded issues, the revenue hasaccepted the same in view of the fact that the said issues are coveredby the decision of the Patna High Court in the case of Union CarbineIndia Ltd (1996 (86) ELT 613. However these reference petitions arefiled by the revenue by raising the following questions of law :1.Whether the Tribunal is correct in holding that the saiditems are in the nature of inputs used in or in relation tothe manufacture of final product as specified under Rule 57Aof Central Excise Rules, 1944, and2. Whether declarations under Rule 57Q made would entitlethe assessee to credit under Rule 57A even though adeclaration was not in terms of Rule 57A?"2. The primary contention of the revenue in this case is thatthe items are not used in or in relation to the manufacture of finalproduct. The first of the items is Hydrochloric Acid (HCL). Accordingto the department, HCL was used to treat the effluent which was awastage obtained and hence it was not used in or in relation to themanufacturing process. This issue is no longer res integra as it hasalready been considered by the Supreme Court in the case of IndianFarmers Fertiliser Co-operative Ltd. v. C.C.E., Ahmedabad, AIR 1996 SC https://hcservices.ecourts.gov.in/hcservices/

2542. In that case raw naptha was obtained at the concessional rateand used for producing ammonia which in turn was used partly, directlyin the urea plant and partly, indirectly in the production of urea bybeing employed in off-site plants, namely, water treatment plant,steam generation plant, inert gas generation plant and effluenttreatment plant, all of which were part of the integral process of themanufacture of urea. After taking into consideration the earlierjudgment in the case of C.C.E., Calcutta II v. M/s.Eastend PaperIndustries Ltd. AIR 1990 SC 1893, J.K.Cotton Spinning and WeavingMills Co. Ltd., v. Sales Tax Officer, Kanpur, AIR 1965 SC 1310,C.C.E., New Delhi v. M/s. Ballarpur Industries Ltd., AIR 1990 SC 196and Deputy CST v. Thomas Stephen & Co. Ltd., AIR 1988 SC 997 inparagraph 9, the Supreme Court held as follows :"9. That leaves us to consider whether the raw naphthaused to produce the ammonia which is used in the effluenttreatment plant is eligible for the said exemption. It istoo late in the day to take the view that the treatment ofeffluents from a plant is not an essential and integralpart of the process of manufacture in the plant. Theemphasis that has rightly been laid in recent years uponthe environment and pollution control requires that allplants which emit effluents should be so equipped as to ridthe effluents of dangerous properties. The apparatus usedfor such treatment of effluents in a plant manufacturing aparticular end product is part and parcel of themanufacturing process of that end product. The ammonia usedin the treatment of effluents from the urea plant of theappellants has, therefore, to be held to be used in themanufacture of urea and the raw naphtha used in themanufacture of such ammonia to be entitled to the saidexemption." Hence, the HCL used to treat the effluent would qualify for thecredit.3. The other issue is that certain items are used for manufactureof Soderberg paste which is used as anode in the electrolytic cell.As the electrolytic cell did not qualify as goods the anode which ismade out of the items forming a component of the cell was not eligiblefor credit under Rule 57-A. In respect of the very same item which isused for manufacture of soderberg paste which is a by-product in themanufacture of Aluminium in the case of Indian Aluminium Co. Ltd.,1988 (98) ELT 397 (T) it has been held in favour of the assessee.Factually, the Tribunal found that the Soderberg which is a paste andwhich is an intermediate product essential for manufacture ofaluminium. In the light of the factual finding that input is usedessentially in or in relation to the manufacture of end productAluminium, the finding of fact is approved and as such the assessee isentitled to take credit. https://hcservices.ecourts.gov.in/hcservices/

4. The next item is Non-Ferric Alum. According to the departmentNon Ferric Alum was used for recovering cryolite for recycling andalso for water treatment purposes. As Non Feric Alum was not used inor in relation to the manufacture of final product, it is the case ofthe department that it would not come within Rule 57A. It is anadmitted fact that the Alum was used for recovering cryolite forrecycling and also for water treatment purposes. The reasoning statedby the Supreme Court in the case of Indian Farmers Fertiliser Co-operative Ltd. v. C.C.E., Ahmedabad, AIR 1996 SC 2542 would equallyapply to this issue as well.5. In respect of M.S.Angles/Channels, etc., before theauthorities, a short write up on the materials used for thefabrication of electrolytic parts has been given and the same wastaken note of. On the basis of the write up the Tribunal satisfiedthat these items were not used for repairing or maintenance butactually were used in or in relation to the manufacture of the finalproduct. We approve the finding of fact that these items are used inor in relation to the manufacturing activity as nothing contrary hasbeen placed before us. 6. In respect of oxygen gas, acetylene gas, electrodes, weldingwire and pig iron, the Tribunal held that Modvat credit were to beallowed following the judgment of the Tribunal in 1993 (67) ELT 364.The issue has been covered in favour of the assessee by the decisionof the apex Court in the case of C.C.E., Coimbatore v. Jawahar MillsLtd., 2001 (132) ELT 3 in which the earlier decision of the SupremeCourt in the case of Indian Farmers Fertiliser Co-operative Ltd. v.C.C.E., Ahmedabad, AIR 1996 SC 2542, has been taken note of.Incidentally with regard to all these issues, the department hascontended that the case of Jawahar Mills Ltd., 108 ELT 47 held infavour of the assessee has been taken on appeal by the department tothe Supreme Court and the same is pending. Now the Supreme Court in132 ELT 3 decided the issue in favour of the assessee. 7. The next of the items is transformer oil on which credit wasgiven. The contention was that the transformer oil was not used in orin relation to the manufacture of Aluminium, but used as a coolant inthe transformer to provide uninterrupted power supply to the processand hence ineligible for credit. We are not able to accept the standof the department. Without power, manufacturing activity cannot becarried out and in order to have an uninterrupted power, thetransformer has to perform its optimum potential and in order to keepthe transformer to its optimum potential the use of coolant isnecessary and hence, we concur with the fact finding authority. 8. Rodline and Alfloc, according to the department, are used inboiler water for the preparation of softening watering so that scaleformations are reduced and break down of boiler does not take placewhere steam is generated for use and also reduce the corrosive effects https://hcservices.ecourts.gov.in/hcservices/ of acid in washing the evaporator and heat exchanger. The ratio ofthe Supreme Court in the case of Indian Farmers Fertiliser Co-operative Ltd. v. C.C.E., Ahmedabad, AIR 1996 SC 2542 is equallyapplicable to this item also.9. In view of the above, we find no substantial question of lawto direct the Tribunal to state a case. The Reference Case Petitionsare dismissed. No costs. Sd/Asst.Registrar/true copy/Sub Asst.RegistrarmfTo1. The Assistant Registrar,Customs, Excise & Gold (Control)Appellate Tribunal South Zonal Bench,Shastri Bhavan Annexe, Chennai.2. The Assistant Commissioner of Central Excise,Salem Division, Salem.3. The Commissioner of Customs & Central Excise,(Appeals) Cantonment.1 cc To Mr.T.S.Sivagnanam, Advocate, SR.3022.1 cc To Mr.Inbarajan, Advocate, SR.3074.R.C.Ps. Nos.49 to 56 of 2001 KSJ(CO)RVL 01.02.2008