Holding

The chemicals are essential inputs in the steel manufacturing process and therefore the assessees are entitled to MODVAT credit on them.

Summary

The Collector of Central Excise challenged the claim of MODVAT credit by Mis. Escorts Mahle Ltd. for chemicals—Ramming Mass, Fibre Glass and Filter Mesh—used in the manufacture of steel pistons. The assessees argued that these chemicals are essential to neutralise acidic vapours generated during steel melting, without which the furnace would be damaged. The issue was whether such chemicals fall within the definition of inputs eligible for credit under the Proviso to Rule 57A of the Central Excise Rules. The Supreme Court examined the manufacturing process and relied on its earlier decision in Collector of Central Excise v. Steel Authority of India Ltd., where burnt dolomite used for the same purpose was held to be an eligible input. Finding that the chemicals are indispensable to the production of the final steel product, the Court held that the assessees are entitled to MODVAT credit. Consequently, the revenue's appeal was dismissed and the credit allowed.

Issues considered

Whether Ramming Mass, Fibre Glass and Filter Mesh used in steel piston manufacturing qualify as inputs for MODVAT credit under the Proviso to Rule 57A of the Central Excise Rules.
Whether the denial of credit by the revenue authority is legally sustainable.

Legislation cited

Central Excise and Salt Act, 1944s. 35(G)
Central Excise Ruless. Proviso to Rule 57A

Subjects

MODVAT creditCentral Exciseinputssteel manufacturingacidic vapoursRamming MassFibre GlassFilter MeshProviso to Rule 57Aeligibility

Judgment

r

COLLECTOR OF CENTRAL EXCISE, 'BANGALORE A
v.
MIS. ESCORTS MAHLE LTD.

MAY 6, 2003

[M.B. SHAH AND ARUN KUMAR, JJ.] B

Central Excise and Salt Act, 1944; Section 35(G)/Central Excise Rules;
Proviso to Rule 57A:

MOD VAT credit on certain chemicals used in the manufacture of steel C
product-Claims of-Held: Since use of these chemicals is essential for
neutralizing the acidic vapours to prevent damages to the furnace in the
manufacture of steel product, the final product, the assessees are entitled to
MODVAT credit on these chemicals.
'
D
In these appeals Revenue challenged the eligibility of assessees to
MODVAT credit on Ramming Mass, Fibre Glass and Filter Mesh used in
the manufacture of steel pistons.

It was contended for the assessees that chemicals like Ramming Mass,
Fibre Glass and Filter mesh have been used to neutralize the effect of acidic E
vapours produced on melting of steel in the manufacture of steel pistons,
the final product. Therefore, assessees were entitled to MODY AT credit
on these chemicals.

Dismissing the appeals, the Court
F
HELD: Keeping in view the manufacturing process of the steel
wherein chemicals viz. Ramming Mass, Fibre Glass and Filter Mesh are
used to control the acidic vapours generated during the steel
manufacturing, this Court has held in Collector of Central Excise v. Steel
Authority of India limiled• that use of such chemicals is essential in the G
process of manufacturing of steel, the final product. Since manufacturing
process used in the manufacture of steel pistons in the instant case was
same, the asscssees were entitled to MODVAT credit on these chemicals,
viz. Ramming Mass, Fibre Glass and Filter mesh. (1207-G; 1208-C(

1205 H
1206 SUPREME COURT REPORTS (2003] J S.C.R.

A *Collector of Central Excise v. Steel Authority of India ltd. iii
C.A.No.661512003 decided by Supreme Court, relied on.

Electric Furnace Steel Making (American Institute of Mining)" Page 157,
referred to.

B CIVlL APPELLATE JURISDICTION: Civil Appeal No. 5168-5170 of
2001.

From the Judgment and Order dated I. 12.99 of the Karnataka High
Court in T.R.C. Nos. 3-5 of 1996.

c WITH

C.A. Nos. 443/2002, 2128/97, 968, 1122 and 1810 of2003.

Raju Ramachandran, Additional Solicitor General, T.L.V. Iyer, Joseph
Vellapally, Harish N. Salve, Ms. Vibha Datta Makhija, K.C. Kaushik,
D Ms. Smita Inna, B. Krishna Prasad, Praveen Kumar, P.V. Patnakar, Nitin
Bhardwaj, s.unil Kumar Jain, Kamal Mohan Gupta, A.K. Shahi, M.P. Sharma,
P.C. Jain, Rajesh Kumar, R. Santhanam, Rajendra Singhvi, Ashok K. Singh,
'Ms. Meenakshi Arora and Ms. Mona Chettri for the appearing parties.

The Judgment of the Court was delivered by
E
ARUN KUMAR, J. These appeals are directed against the judgment of
the Karnataka High Court while answering a Reference made under Section
35(G) of the Central Excise and Salt Act, 1944. The question relevant for our
purpose is reproduced as under:
F "Whether on the facts and in the circumstances of the case the
appellate Tribunal is right in law in holding that the applicants are not
eligible to MODY AT Credit in respect of Ramming Mass, Fibre glass
and filter mesh used in or In relation to the manufacture of pistons on
the ground that they are covered under Proviso to Rule 57 A of the
G Central Excise Rules."

In order to appreciate the controversy, the relevant facts are that the
assessees claimed benefit of MODY AT Credit in respect of Ramming Mass,
Fibre glass and filter mesh. These items are used in the process of manufacture
of steel and without the use of these item,s the end product cannot be produced.
H The assessees in these cases are engaged in the manufacture of items of steel
C.C.E. v. ESCORTS MAHLE LTD. [ARUN KUMAR. J.] 1207

- like pistons in the Escort's case. The nianufacture takes place in electric arc
furance refractories. It is submitted on behalf of the assesses th~t during the
A

course of manufacture steel is melted at a very high temperature. Steel produces
acidic vapours when melted at such a high temperature. To contain the vapour
... and neutralise them chemicals like dolomite or magnesite are used during the
course of manufacturing process. Ramming Mass, fibre glass and filter mesh B
are processes in which chemicals are used to line the furances to neutralise
the effect of acidic vapours produced during the course of melting steel.
Unless these chemicals are used, the furance I may burst. Accordingly, it is
submitted on behalf of the assesses that the~e chemicals being necessary
inputs in the process of manufacture of steel items, MODY AT Credit has to
be allowed on them. c
In respect of this contention that it is necessary to use such processes
like Ramming Mass, the learned counsel. appearing for the assessees drew
t our attention to a book titled as "Electric Furance Steel Making (American
Institute of Mining)" wherein while dealing with electric arc furance
refractories, it is stated on page 157 as under: D
"It is well know that much of steel making and refining is concerned
not only with the removal of carbon to steel chemistry ranges but also
with the removal of phosphorus and sulfur to appropriately low values.
Since phosphorus and sulfur are chemically acidic materials, their
removal from the melt is effected by combining them with the basic E
material lime (CaO) which holds them in the slag. However, for the
lime to function in this role it must be allowed to react with the sulfur
or phosphours in the melt and not with the silica from the refractories-
a more acidic material than phosphorus or sulfur, Accordingly a basic
refractory-lined container (of dolomite or magnesite) is provided to p
allow the removal of the undersirable phosphorus and sulfur from the
melt to the slag without excessive corrosion of the refractory lining."

Keeping the aforesaid manufacutring process in view and also bearing
in mind that it is essential to control the acidic vapours generated during the
steel manufacturing process, this Bench has held in C.A.No. 6615/2003 G
Collector of Central Excise v. Steel Authority of India Limited that use of
such chemicals is essential for the manufacturir.g process. Specifically, it was
observed that:

"As discussed by the concerned authority burnt dolamite is used
so as to neutralize the acid which is formed at the time of H
.,
1208 SUPREME COURT REPORTS [2003) 3 S.C.R.

A manufacturing steel. This burnt dolamtie is, therefore, used in relation
to manufacturing of the final product. It has been rightly pointed out
that respondent is using burnt dolamite in relation to manufacture of
-
final product so that it may combine with acid which is formed at the
time of manufacture of the steel and neutralize the said acid so that
it may prevent damage to the furnace. But the used burnt dolamite is
....
B for neutralizing the acid form in the course of manufacture of steel.
Hence, the judgment cannot be said to be, in any way, illegal or
erroneous. The appeal is, therefore, dismissed. There shall be no
orders as to costs."

C Manufacturing process being the same in these cases, we hold that the
assesses are entitled to MODY AT Credit on Ramming Mass, Fibre glass and
filter mesh.

The appeals are accordingly dismissed with no order are to costs.
I

S.K.S. Appeals dismissed.

,_