ORIENT PAPER MILLS Vs. COLLECTOR OF CENTRAL EXCISE

JUDGEMENT

(1.) THE appeal is directed against the order dated 28 -12 -1990 passed by the Commissioner of Central Excise (Appeals), Indore. The order upholds the decision of the Assistant Commissioner of Central Excise, Jabalpur dated 9 -12 -1987 denying the Modvat credit on certain inputs used by the appellants on which they have claimed the credit as they are used in or in relation to manufacture of their final product paper. The description of the inputs in question, their function in the process of manufacture and the ground on which the lower authorities had not considered them as eligible inputs for Modvat credit, are given in the tabular columns below : -

(2.) SHRI Bagaria, ld. counsel appeared along with ld. counsel Shri K.K. Kapoor for the appellant and submitted that inputs listed from S. No. 1 -11 in the tabular column are in the nature of water purifying chemicals which are essential for purifying the water i.e. used in the steam generation in the paper manufacture. He further cited certain technical authorities including the book entitled "Pulp and Paper Technology" to say that water is an important raw material in the manufacture of paper and its purification and demineralisation is essential so as to ensure the quality of the ultimate paper that is manufactured. In respect of the eligibility of credit on the chemicals used in the purification treatment and demineralisation of water for use in the manufacture of paper and for purification of the water for being converted into steam for use in the different manufacturing processes as also for generation for electricity had come up for consideration in respect of same appellant under the set off Notification 201/79. The Assistant Commissioner in the case of such water purifying chemicals has earlier held that in the context of that notification these were not inputs or component parts used in the manufacture of the final product for being eligible for set off. The issue had come up before the Tribunal who had held in favour of the appellant and had rejected the department's appeal. This order of the Tribunal had been ultimately confirmed by the Supreme Court in its order dated 9 -3 -1987 in Civil Appeal No. 2101 (NM) of 1986. Therefore, so far as these chemicals at S. Nos. 1 -11 are concerned, their use in paper making is a technological necessity as shown by the textual authorities and their status as an input in the manufacture of paper has also been recognised in the judicial decisions of the Tribunal as upheld by the Supreme Court. The ld. counsel further submitted that the inputs at S. Nos. 14, 15 and 16 are felts and synthetic fabrics, special link dryer fabric, dandy cover etc. specifically covered by the decision of the Larger Bench reported in 1996 (15) RLT 144. In the same Larger Bench decision, the principle has been laid down that the exclusion clause categorising materials which cannot be considered as inputs under Rule 57A Central Excise Rules will cover only complete machines, machinery, equipment appliances etc. and not parts thereof. This ratio would apply to the inputs in this case at S. Nos. 17 to 19 of the table above because these are cutter knives, chipper, discs, adapter, plug fillings etc. which cannot function independently but have to be fitted in the respective machines which are used in the paper manufacture. As such they are not excluded input under Rule 57A. Ld. Counsel also submitted that the inputs at S. Nos. 12 and 13 of the annexed table are also eligible for Modvat because they are essential for cleaning felts, used in the manufacture or paper and if it is nor done the quality of paper board will be affected.

(3.) WE have heard Shri Mewa Singh ld. SDR who submitted that most of the inputs in question would be covered by the ratio of the Larger Bench decision in the case of Union Carbide India Ltd. and Ors. v. CCE.