Collector Of Central Excise, Bangalore vs M/S. Escorts Mahle Ltd

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.