MUKUND IRON AND STEEL WORKS LTD Vs. COLLECTOR OF C EX

JUDGEMENT

(1.) THIS is an appeal directed against the order of the Collector (Appeals) bearing No. V-2(72) 2521/87 3454, dated 1-3-1988.

(2.) Facts of the case for the purpose of disposal of this appeal can be stated as below:

(3.) SHRI T.R. Andhyarujina, the learned senior counsel, appearing on behalf of the appellants referred to the provisions of Rule 57A and also to the Notification issued under the MODVAT scheme showing that these inputs are covered by Notification as also their final products, namely iron and steel. He also pointed out that under Rule 57A the main criterion is that the inputs are to be used in or in relation to manufacture of the finished product. He, therefore, contended that the term 'inputs' has got a wider connotation. It is not merely restricted to raw-materials or components. If the material is used even in relation to manufacture of the finished product, it becomes the input as per the provisions of Rule 57A. He pointed out that the department has objected to the extension of MODVAT benefit in respect of refractory goods, only on the ground that these are used as lining material in the furnace and in other equipments and hence is hit by the explanation provided under Ru'e 57A relating to the term 'inputs'. Elaborating on this point further, he contended that the allegation of the Department is that refractory is a part of the machinery. He emphatically denied that these refractories can ever be called as part of the machinery. The machinery manufacturers do not produce refractory items. Refractory material gets consumed in the process of manufacture of steel. They also participate in the chemical process and also contribute to the quality of steel making unlike in the case of machinery. Hence it cannot be equated with machinery and thus denied the MOD VAT benefit. He also pointed out that refractory material is to be chosen with reference to type and quality of steel to be produced. It is not merely heat resistance job for protecting the furnace which a refractory material is doing but also it is required to provide chemical reaction for influencing the quality of steel. It also facilitate removal of impurities like phosphorus and sulphur. In view of this, when it participates in chemical process and also gets consumed requiring frequent replacement, it cannot be equated with machinery, which is a permanent equipment for production. Merely because these consumable materials are used for lining the furnace, they cannot be sought to be a part of the machine. These refractory materials cannot also be said to be Capital Goods. On the contrary, these are accounted for in the inventory of stores in the Profit and Loss Account. It is not disputed that refractories is a 'must' for manufacture of steel and it is also an undisputed fact that these get consumed in the process and provides improvement to the quality of steel. Hence it is a necessary input and cannot be equated with machinery or equipment, which only are sought to be excluded. In this context, he also cited the judgment of this Bench reported in Gujarat Alkalies & Chemicals Ltd. v. Collector - 1989 (41) E.L.T. 424 (Tribunal), wherein the Tribunal has held that Titanium Metal Anodes used in the electrolysis process have been held to be not machinery, plant or apparatus and allowed input benefit under MOD VAT scheme. On the same analogy, refractory materials which cannot be equated with the machinery, plant or apparatus should be extended the MOD VAT benefit. He also referred to the Board's Tariff Advice given in F.No. B-22/51/86 TRU, dated 21-10-1986, wherein Graphite Electrodes which are parts of furnace are given the MOD VAT benefit on the ground that it is a consumable item and it is essential for manufacture of steel. The same criteria should be adopted in this case for extending the benefit. He also referred to the Trade Notice in regard to pyrometer tips, wherein pyrometer tips, which are part of an instrument for measuring the temperature have been extended the MOD VAT benefit on the ground that they get consumed. In this context he referred to the Trade Notice No 209/M, dated 7-8-1987 issued by the Collectorate of Central Excise, Calcutta-II. He also argued that the term 'inputs' under Rule 57A has wider implication and cannot be given a restricted meaning. He sought to draw the analogy on the Supreme Court judgment reported in AIR 1965 SC (563) and also another Sales Tax judgment reported in 1972 (Vol. 12) Sales Tax Cases, Page 109. He also took us through the technical literatures of refractory materials for steel making. He emphasised the point that the refractory consumption has a direct effect on the cost of steel and it participates in chemical process and it is distinct from the structure of the machinery. He also contended that the Board's Tariff Advice denying the benefit in respect of refractories for steel industry is based on their consideration of the issue with reference to cement industry, which cannot be applied in the case of refractories for steel industry.