Collector of Central
Excise, Bangalore Vs. M/S. Escorts Mahle Ltd  Insc 267 (6
M.B. Shah & Arun Kumar J U
D M E N T With Civil Appeals Nos. 443/2002, 2128/1997, 968/2003, 1122/2003 &
1810/2003 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 :
"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 MODVAT 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 57A of the Central Excise Rules."
In order to appreciate the controversy, the relevant facts are that the
assessees claimed benefit of MODVAT 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 items the end product cannot be produced.
The assessees in these cases are engaged in the manufacture of items of steel
like pistons in the Escort's case. The manufacture takes place in electric arc
furnace refractories. It is submitted on behalf of the assesses that during the
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 are processes in which chemicals are used to line the furnaces to
neutralise the effect of acidic vapours produced during the course of melting
steel. Unless these chemicals are used, the furnace may burst. Accordingly, it
is submitted on behalf of the assesses that these chemicals being necessary
inputs in the process of manufacture of steel items, MODVAT Credit has to be
allowed on them.
In respect of this contention that it is necessary to use such processes
like Ramming Mass, the learned counsel appearing for the assesses drew our
attention to a book titled as "Electric Furnace Steel Making (American
Institute of Mining)" wherein while dealing with electric arc furnace
refractories, it is stated on page 157 as under :
"It is well known 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 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 phosphorus 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 allow the removal of the undesirable phosphorus and sulfur from the
melt to the slag without excessive corrosion of the refractory lining."
Keeping the aforesaid manufacturing 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 [Collector of
Central Excise vs. Steel Authority of India Limited ] that use of such
chemicals is essential for the manufacturing 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 manufacturing steel. This
burnt dolamite 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 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
order as to costs." Manufacturing process being the same in these cases,
we hold that the assesses are entitled to MODVAT Credit on Ramming Mass, Fibre
glass and filter mesh.
The appeals are accordingly dismissed with no order as to costs.