[Majority Order per : Justice U.L. Bhat, President for himself and for Shri K.S. Venkataramani, Member (T)]. - These appeals have been heard together and are being disposed of by this common order as they involve common questions of law. The appeals E. 601/90, E.737/90 and E.19/91 were referred to a larger Bench by the Western Regional Bench by an order reported in . This was followed by reference of appeal E.49/92 by the Eastern Regional Bench by an order reported in . The other appeals were referred by brief orders. We have heard learned counsels appearing for the various appellants Shriyuts Lakshmi Kumaran, R.C. Gupta, Arun Mehta, S.K. Bagaria, K.K. Kapoor, T. Gunasekaran, G. Prabhakara Sastry, C. Willingdon and the Senior Departmental Representative, Sri Sanjeev Sachdeva.

2. The respondent in Appeal E.332/94 and the appellants in other appeals are manufacturers of excisable final products. They availed Modvat credit in respect of certain goods claimed as inputs as defined in Rule 57A of Central Excise Rules, 1944. The jurisdictional Assistant Collectors disallowed Modvat credit. In the case relating to appeal E.332/94, the Collector (Appeals) set aside the order, holding that the respondent was entitled to benefit of Modvat credit while the Collector (Appeals) in the other cases confirmed the orders disallowing the benefit of Modvat credit. In a few of the cases, Modvat credit was disallowed on the ground that the goods in respect of which credit was claimed were spare parts of machinery which attract the exclusion clause (i) of explanation to sub-rule (1) of Rule 57A of the orders. In some of the cases, it was held that the goods claimed to be inputs were not used in or in relation to the manufacture of final products. The Collector (Appeals) took the contrary view in one of the cases as indicated already.

3. The particulars of the cases are as follows :–

4. Resolution of the controversy in these appeals depends on the correct understanding of provisions of Rule 57A relating to Modvat Credit Scheme. The scheme enables manufacturers of specified final products to avail credit of specified duty paid on specified goods (referred to as “inputs”) used in or in relation to the manufacture of the said final products and to utilise such credit towards payment of excise duty leviable on the final products under the Central Excises and Salt Act, 1944 (for short, the Act) or under any other Act as may be specified. The provision is subject to the provisions of the other Rules in the section and the conditions and restrictions that may be specified. Relevant portion of the Explanation to Rule 57A reads thus :

“Explanation :- For the purpose of this rule, ”inputs" includes -

(a) xxx xxx xxx xxx

(b) xxx xxx xxx xxx

but does not include -

(i) machines, machinery, plant, equipment, apparatus, tools or appliances used for producing or processing of any goods or for bringing about any change in any substance in or in relation to the manufacture of final products;

(ii) xxx xxx xxx xxx

(iii) xxx xxx xxx xxx

(iv) xxx xxx xxx xxx

(v)   xxx xxx xxx xxx"

(Emphasis supplied)

5. The earliest decision of the Tribunal having a bearing on the question in controversy is Binani Zinc Ltd. v. Asstt. Collector Of Central Excise, Cochin - (SRB). Claim for Modvat credit was made in respect of duty paid on Aluminium sheets used as cathodes in electrolysis processing for manufacture of unwrought zinc. By constant use sulphur ions get deposited on the sheets and thereby their utility is reduced and periodically the sheets would be discarded and sold as scrap. The contention that the sheets were part of the electrolysis equipment and since equipment attracted the exclusion Clause (i) of the Explanation to Rule 57A, parts of such equipment also attracted the exclusion clause was over-ruled as without any legal basis. Aluminium sheets are an essential requirement in the electrolysis process and require replacement after they loose their utility. They are used directly in the manufacturing process and cannot be treated as equipment itself and hence they can be said to have been used “in relation to the” manufacture of the final product and are “inputs” in the wider sense of the expression used in Rule 57A of the Rules. The Bench relied on the decision of the Supreme Court in M/s. J.K. Cotton Spinning and Weaving Mills Co. Ltd. v. S.T.O. - AIR 1965 S.C. 1310. The above decision was followed by the same Bench in another case of the same assessee reported in . In Collector of Central Excise v. Ashim Paper Products (P) Ltd. - (Tribunal) a single Member of Eastern Regional Bench held that wire mesh and industrial cloth used for removing moisture from pulp are in the nature of appliances and not “inputs” and as such the manufacturer was not entitled to Modvat benefit in respect of duty paid thereon.

6. The South Regional Bench held against the assessee in Andhra Pradesh Paper Mills Ltd. v. Collector of Central Excise - (Tribunal) in regard to chipper knives used in cutting wood on the ground that they are to be regarded as tools attracting the exclusion Clause (i) of the Explanation to Rule 57A of the Rules. It was also held that dandy covers, wire mesh and woollen felts were essential parts of the paper making machinery and used to keep the machinery functional and participate in the manufacture of the final product by being a part of the paper making machinery, but these, by themselves do not participate in the processes which are carried on in processing the materials which ultimately lead to the manufacture of paper. The purpose of the scheme is to reduce the cascading effect of the duty on the final product and not to mitigate the cascading effect of the duty paid on the machinery and as a corollary, the parts which are used in the machinery to make them functional are not entitled to the benefit of the scheme. These parts which are replaced from time to time are to be regarded as used in relation to the machinery and not in relation to the manufacture of the final products. Reliance was placed on the decisions of the Supreme Court in J.K. Cotton Spinning and Weaving Mills Co. Ltd. v. S.T.O. - AIR 1965 S.C. 1310 and Collector of Central Excise v. Eastern Paper Industries Ltd. - (S.C.) = 1990 (26) ECR 10. The Bench did not notice its own earlier decision in Binani Zinc Ltd. v. Asstt. Collector Of Central Excise, Cochin - .

7. The Eastern Regional Bench which took note of the decision in Andhra Pradesh Paper Mills Ltd. v. Collector of Central Excise - declined to follow it in Straw Products Ltd. v. Collector of Central Excise - . The Bench also relied on the decision of the Supreme Court in J.K. Cotton Spinning and Weaving Co. Ltd. v. Collector of Central Excise - AIR 1965 S.C. 1310 and approved the earlier decision of the Tribunal. The case related to chemicals and resins used by the manufacturer for treatment of water in the course of manufacture of paper and also felt and wire netting of stainless steel and phosphor bronze used in the manufacture of paper. The Bench held that Modvat credit was allowable in regard to chemicals and resins for treatment of water and in regard to felt in the manufacture of paper as also in regard to wire mesh or netting used in the manufacture of paper. The Bench took the view that felt is an article of textile material and as such is not an article of machinery. It was of the view that any article used in the machine to make it functional is not necessarily part of that machine and, therefore, felt and wire netting cannot by themselves be treated as machine. Even assuming that they are parts of the machine, eligibility for Modvat is not excluded by exclusion Clause (i) as they are inputs used in or in relation to manufacture of paper and not used in relation to machine only. The Bench was of the further view that parts of machine, as distinct from machines, do not figure in exclusion Clause (i) and parts of machine cannot be inducted into the exclusion clause by analogy or corollary.

8. The reference order reported in has doubted the correctness of the decision in Straw Products Ltd. v. Collector of Central Excise - (Tribunal), taking the view that felt and wire netting are parts of paper making machinery which are replaced after periodical use, that they are used as parts for the functional operation of machine and are not inputs used in or in relation to the manufacture of the product. The Bench also did not agree with the approach made in the earlier decision that section notes and chapter notes and the Rules of Interpretation could be relied for interpreting the terms machine, machinery, plants, etc., occurring in Rule 57A of the Rules.

9. The crucial question for consideration relates to the exact significance and amplitude of the expression “input” used in Rule 57A of the Rules. The Rule itself defines inputs as “goods used in or in relation to the manufacture of the said final products.” In this connection both sides rely on the decision of Supreme Court in J.K. Cotton Spinning and Weaving Mills Co. Ltd. v. S.T.O. - AIR 1965 S.C. 1310. That was a case which arose in the context of the provisions of Sales Tax Act and the Rules framed thereunder. The Supreme Court held -

“The expression ”in the manufacture of goods" should normally encompass the entire process carried on by the dealer of converting raw materials into finished goods. Where any particular process is so integrally connected with the ultimate production of goods that but for that process, manufacture or processing of goods would be commercially inexpedient, goods required in that process would, in our judgment, fall within the expression “in the manufacture of goods.”

The Court gave the example of various processes raw cotton is subjected to before it is converted into yarn and yarn is converted into textiles and indicated that the processes would be regarded as integrated processes and included in the “manufacture” of cloth. The Court further observed as follows :-

“In our judgment if a process or activity is so integrally related to the ultimate manufacture of goods so that without that process or activity manufacture may, even if theoretically possible, be commercially inexpedient, goods intended for use in the process or activity as specified in Rule 13 will qualify for special treatment.”

The Supreme Court also observed that there is no warrant for limiting the meaning of expression “in the manufacture of goods” to the process of production of goods only. The expression “in the manufacture” takes in within its compass, all processes which are directly related to the actual production.

10. In Doypack Systems (Pvt.) Ltd. v. Union of India - the Supreme Court, considering the expressions “pertaining to”, “in relation to” and “arising out of” in Section 4(1) of the Swadeshi Cotton Mills Company Limited (Acquisition and Transfer of Undertakings) Act, 1986, held that they are used in the expansive sense and are interchangeable. The Court also held as follows :-

“The expression “in relation to” (so also “pertaining to”), is a very broad expression, which pre-supposes another subject matter. These are words of comprehensiveness which might both have a direct significance as well as an indirect significance depending on the context .... In this connection reference may be made to 76 Corpus Juris Secundum at pages 620 and 621 where it is stated that the term “relate” is also defined as meaning to bring into association or connection with. It has been clearly mentioned that “relating to” has been held to be equivalent to or synonymous with as to “concerning with” and “pertaining to”.

11. We may refer to another decision of the Supreme Court in Collector Of Central Excise, New Delhi v. Ballarpur Industries Limited. - . The assessee was manufacturing paper and paper board. Sodium sulphate was used in the chemical recovery cycle of sodium Hydroxide and Sulphide which formed essential constituents of sulphate cooking liquor used at the stage of digestion of the pulp. But sodium sulphate did not become part of paper. It would be burned up in the process. The claim of the assessee was for exemption from payment of excise duty on sodium sulphate as “raw material or component part” of the finished product on the basis of Notification dated 28-2-1982. The notification granted exemption to all excisable goods on which excise duty was leviable and in the manufacture of which any goods falling under Item 68 of Excise tariff have been used as raw material or component parts. The goods so used were referred to as “inputs”. Exemption was of so much of excise duty as was equivalent to the excise duty paid on the inputs. The question was whether sodium sulphate could be said to have been used as “Raw material” in the manufacture of paper or paper board. The Court indicated that one of the valid tests is :

“that the ingredients should be so essential for the chemical processes culminating in the emergence of the desired end-product, that, having regard to its importance in and indispensability for the process, it could be said that its very consumption on burning up is its quality and value as raw-material. In such a case, the relevant tests is not its presence in the end-product, but the dependence of the end-product for its essential presence at the delivery end of the process. The ingredient goes into the making of the end-product in the sense that without its absence the presence of the end-product, as such, is rendered impossible. This quality should coalesce with the requirement that its utilisation is in the manufacturing process as distinct from the manufacturing apparatus.”

Referring to the decision in Deputy Commissioner of Sales Tax v. Thomas Stephen and Company Ltd. - (S.C.) = J.T. 1988 I S.C. 631 where it was held that cashew shells used as fuel in the kiln used for manufacture of tiles were not excisable to purchase tax as “goods consumed in the manufacture of other goods” under Section 5A(1)(a) of Kerala General Sales Tax Act, 1963, the Court indicated that the observations therein to the effect that -

“These (cashew shells) have not been used as raw materials in the manufacture of the goods. These have been used only as an aid in the manufacture of the goods by the assessee. Consumption must be in the manufacture as raw- material or of other components which go into the making of the end-product to come within the mischief of the section. Cashew shells do not tend to the making of the end product."

were made to emphasis the distinction between “fuel” used for kiln to impart the heat treatment to tiles and what actually went into the manufacture of such tiles and do not mean that for something to qualify itself as “Raw material” it must necessarily and in all cases go into, and be found, in the end product. The Court held that sodium sulphate was used in the manufacture of paper as “Raw material” within the meaning of the Notification.

12. In Mukund Iron and Steel Works Ltd. v. Collector of Central Excise - (Tribunal), the Tribunal held that refractory, ramming mass and fireclay used for lining the furnace and ladles for heat resistance are not eligible for Modvat credit. This decision was followed by another Bench of the Tribunal in regard to refractory bricks on the ground that they are used only as part of furnace. The furnace itself is a part of the machine. Tile bricks do not have any identity and do not get consumed and even when replaced they are worn refractories and in their place, no new commodity emerges.

13. The High Court of Calcutta in Singh Alloys & Steels Ltd. v. Assistant Collector of Central Excise - held that the two aforesaid decisions of the Tribunal were erroneous. Ramming mass and Dolopatch mix classified as miscellaneous chemical products under Chapter 38 Heading 3816.00 and Manganese peas (classified under Heading 28.20) are first charged into the furnace as fettling materials and to dissolve and seal the crevices in the refractory walls of the furnace to prevent leaking of the liquid metal from the furnace and to reduce the erosion of the refractory lining of the furnace and lose their identity and are consumed in the process. Some parts of these articles remain in the liquid metal and balance forms part of the residue or slug. The Court noticed the wider connotation of the phrase “in relation to” used in Rule 57A of the Rules. It was indicated that indisputedly ramming mass, dolopatch mix and manganese peas are “inputs” within the meaning of the Rule. The true question according to the Court is -

“are the items inputs at all in respect of steel ingots?" and if the question is answered in the affirmative, the next question is

“are the items within the excluded inputs?”

The Court held -

“Analysing the meaning of inputs as provided in the explanation it would appear that everything is an input if it is (i) manufactured and used within the factory of production or (ii) used in relation to the manufacture of the final products, and, (iii) paints and packaging material. The exceptions relate to items which would otherwise have come within the inclusive definition of inputs.”

(Emphasis supplied)

and

“The subject of the legislature appears to me to be to exclude from the genus of inputs, the species mentioned in the excluded categories because otherwise a manufacturer would be entitled to claim Modvat in respect of such inputs repeatedly as these would not be inputs which would be consumed in the process of manufacture. This is clear from a scrutiny of the excluded items.”

The Court further held that these inputs do not fall within dictionary meaning of “machine, machinery, instrument or appliance” and are chemicals used for the machinery. The Court held -

“It does not matter that the items are used in the machinery or for the purpose of the machinery. To repeat, the only relevant question is, are they used in or in relation to the manufacture of ingots.”

(Emphasis supplied)

It was further held that the Tribunal was in error in seeking limit the meaning of the word “inputs” to those items which go into the steel ingot completely overlooking the phrase “in relation to”. This decision was followed by a larger Bench of the Tribunal in Collector of Central Excise v. A.B. Tools Ltd. - holding that ramming mass is an input and not part of machinery.

14. In Shri Ramakrishna Steel Industries Ltd. v. Collector of Central Excise - , larger Bench, held that chemicals and resin used in making sand mould which is used to manufacture steel ingots, the final product, are inputs eligible for Modvat credit which could be utilised to pay duty on the final product. The Bench observed :

“The words “in relation to the manufacture” are intended to set at rest all doubts. Where raw material is actually used in the main stream of manufacture of final product, that is, actually used in the physical or chemical process of manufacture, it is certainly an input used in the manufacture of final product. The doubt may arise only in regard to use of some articles not in the main stream of manufacturing process but in another stream of manufacturing something which is to be used for rendering final product marketable or used otherwise in assisting the process of manufacture. Such doubt is set at rest by use of the words “used in relation to manufacture”.”

It was held that sand mould is used “in relation to the manufacture” of final product, namely, steel castings. The larger Bench held that the view taken in Mukund Iron and Steel Works Ltd. v. Collector of Central Excise - (Tribunal) is not correct. Inevitably the same infirmity must attach to the decision in Collector of Central Excise v. Raipur Alloy Steels Ltd. - (Tribunal).

15. We may also refer to the decision of High Court of Madras in Ponds (India) Ltd. v. Collector of Central Excise - . The appellant, manufacturer of cosmetics, used duty paid plastic granules to manufacture plastic containers and used the same as containers for the excisable final product, namely, cosmetics. The Court held that the cosmetic items are not marketable unless packed in containers which have to be treated as component part of the final product and that wider connotation should be given to the words “goods used in or in relation to the manufacture” of final product. Plastic granules would be component parts of the final product. The Court also relied on some of the chapter notes.

16. Under Rule 57A, inputs are not only goods used in the manufacture of final products, but also goods used in relation to the manufacture of final products. The same language is used in exclusion [clause] (i) of the explanation to the Rule. The words “goods ..... used by him (dealer) in the manufacture or processing of goods” occurring in Section 8(3)(b) of the Central Sales Tax Act and Rule 13 of the Rules have been held by the Supreme Court to take in not only the process of production of goods but also all processes which are directly related to the actual production. The Court held that there was no warrant for limiting the meaning of the expression “in the manufacture of goods” (J.K.Cotton Spinning and Weaving Mills Co. Ltd. v. S.T.O. AIR 1965 S.C. 1310). The words “in relation to” occurring in Section 4(1) of the Swadeshi Cotton Mills Company Ltd. (Acquisition and Transfer of Undertakings) Act, 1956 have been held by the Supreme Court to be very broad expressions and to be of comprehensiveness which might have both a direct significance as well as an indirect significance depending on the context. These words have been held to be equivalent to or synonymous with “concerning with” and “pertaining to” [Doypack Systems (Pvt.) Ltd. v. Union of India - ]. The goods to be regarded as “Raw materials” need not necessarily and in all cases go into and be found in the final product.

17. There can be no doubt that the Rule-making authority incorporated the words “in relation to the manufacture” in Rule 57A to widen and expand the scope, meaning and content of the expression “inputs”. Where the language is clear and unambiguous, full effect must normally be given to such language. By no interpretive process, the deliberate design of the Rule-making authority can be frustrated nor words and expressions disregarded as otiose. The wide impact of the expression “used in relation to the manufacture” must be allowed its natural play. Raw materials (as commonly understood) are used in the mainstream of entire process of converting raw materials into finished products or any other process integrally connected with the ultimate production of finished products. What then is the purpose of incorporating the words “in relation to the manufacture” in Rule 57A? The purpose is certainly to widen further the scope, ambit and content of “inputs”. The purpose is to widen the ambit so as to attract also goods which do not enter directly or indirectly into the finished product, but are used in any activity concerned with or pertaining to the manufacture of finished goods. The only direct decision of a High Court on this aspect is that of the High Court of Calcutta in Singh Alloy Steel Ltd. v. A.C. of C.E. - . Goods which are not raw materials converted into finished products and which are charged into furnace as fettling materials to dissolve and seal the crevices in the refractory walls of the furnace and are consumed in the process have been held to be goods used “in relation” to the manufacture of finished goods. The High Court explained that the exclusion clauses of the Explanation to Rule 57A relate to items which would otherwise have come within the definition of inputs. This would mean that machine, machinery and other goods referred to in exclusion Clause (i) would, but for the exclusion fall, within the ambit of the expression “inputs” that is, “goods used in relation to the manufacture of finished products”. The Court stated that it does not matter that the goods are used in the machinery or for the purpose of the machinery. In the absence of any contrary decision of the Supreme Court or any other High Court, the Tribunal is required to follow this decision of the High Court of Calcutta. It would be an act of Judicial indiscipline and impropriety not to follow the only decision of a High Court on this aspect as suggested by the Western Regional Bench in the order of reference reported in . The contention of the assessee is supported by the decision of a larger Bench of the Tribunal in Joy Foam Pvt. Ltd. v. C.C.E., Madras - 1996 (63) ECR 630 (Tribunal), SRB holding that grease proof paper used in machine for manufacture of foam products is an eligible “input” under Rule 57A of the Rules.

18. (i) Felt, Phospher Bronze, stainless steel wire mesh, lin cloth, Dandy cloth etc. Pulp with excess water comes from the pulp making machine to the paper making machine. Pulp is allowed to fall on phospher bronze or stainless steel wire mesh. Pulp particles remain on the wire mesh and web of pulp fibre is formed. It moves on moving wire mesh (endless) and is allowed to fall on felt (cotton, woollen or synthetic). The moving felt carries the pulp web to the drier and is calendered or pressed being wound on rolls and treated further. Wet paper is passed between Dandy Rolles covered with Dandy cover so as to smoothen the surface of the paper. These articles are damaged in the process and require replacement periodically. They are replaceable goods used in the paper making machine in the course of manufacture of paper. They can be regarded in a way, as parts of the paper making machine or machinery used in the machine or for the purpose of the machine; but by their very purpose, they are goods used in relation to the manufacture of paper or paper products and hence are “inputs” as contemplated in Rule 57A. In the light of what we have indicated above, the decisions in Collector of Central Excise v. Ashim Paper Products (P) Ltd. - 1990 (50) E.L.T. 12 (Tribunal) ERB, Andhra Pradesh Paper Mills Ltd. v. Collector of Central Excise - (Tribunal) SRB, Sirpur Paper Mills Ltd. v. Collector of Central Excise - (Tribunal) SRB are not correctly decided. On the other hand, the decisions in Gujarat Alkalies & Chemicals Ltd. v. Collector of Central Excise - (Tribunal), WRB, Binani Zinc Ltd. v. Asstt. Collector Of Central Excise, Cochin - (Tribunal) SRB, Travancore Cochin Chemicals Ltd. v. Collector of Central Excise - (Tribunal) SRB, Collector of Central Excise v. Standard Alkali - (Tribunal), Straw Products Ltd. v. Collector of Central Excise & Customs - (Tribunal) ERB, Collector of Central Excise v. Emami Paper Mills Ltd. - (Tribunal) ERB and Collector of Central Excise v. Bihar Caustic and Chemicals Ltd. - (Tribunal) ERB are correctly decided.

(ii) Copper Wire :

In one of the appeals, the goods stated to be “inputs” is copper wire used in the manufacture of metal containers. The appellant who manufactures metal containers, prints on the metal containers name and the other particulars as per the requirements of the customer. Thin sheets are cut according to required size and the blanks are formed into cylinder and welded. For the process of welding two copper wires are passed between the two weld wheels. A.C. current is generated in the weld wheels as a result of which heat is generated. The copper wire takes away the excess molten tin at the junction of the two ends of the tin and the heated soft edges of the tin sheets joined are together. The copper wire comes out at the other end with small particles of tin deposits. This copper wire cannot be used again and is disposed of as copper waste. It is stated that the Department has accepted the same as copper waste for the purpose of clearance on duty. The copper wire is not consumed in the course of manufacture. It becomes waste by deposit of particles of tin and has to be replaced. Though it cannot be said that copper wire is used in the manufacture of metal container in the sense that it is raw material which enters into the finished product directly or indirectly, it can safely be said that copper wire is used in relation to manufacture of metal container since without the use of the copper wire, the manufacturing process cannot be conducted. Copper wire is, therefore, “input” as contemplated in Rule 57A.

(iii) Spare Parts of Machine manufacturing Batteries :

We have already held that spare of machine, and other goods referred to in exclusion Clause (i) are eligible inputs under Rule 57A of the Rules.

19. It is contended by the Revenue and this contention has been upheld by the Collector (Appeals) in all the appeals except one, that even if the various types of goods referred to above are inputs for the purpose of Rule 57A, they fall within the exclusion Clause (i) and, therefore, Modvat credit will not be eligible for such goods. It is contended for the Revenue that machine, machinery, equipment, appliances, tools etc. would necessarily embrace within their ambit parts, components or spare parts of such machines and, therefore, the exclusion clause would apply. This is denied on behalf of assessee. On this aspect also there are conflicting decisions of various Benches of the Tribunal. We have adverted to those decisions already.

20. It is admitted that all the goods in respect of which claim is made by the manufacturer in these appeals are specified inputs and their final products are specified final products. It is contended for the department that while parts and components of machines are “inputs” as defined in Rule 57A of the Rules where machines are the final products, they are not “inputs” for the purpose of Rule 57A of the Rules where the final products are not machines but goods manufactured using such machines. It is further contended that if parts of machines are to be regarded as inputs used in relation to manufacture of final products produced using the machines, the chain can extend to components or parts or raw materials of such inputs which would lead to an untenable situation. That the policy of the Rule-making authority is not in consonance with this reasoning is clear from Rule 57Q of the Rules. Rule 57Q of the Rules contains an extension of the principle of Rule 57A to an area excluded from the purview of Rule 57A. Exclusion Clause (i) of the Explanation to Rule 57A excludes certain types of capital goods from its ambit. Capital goods are brought within the ambit of a scheme similar to Modvat scheme by Rule 57Q. Rule 57Q inter alia, allows credit of specified duty paid on capital goods (as defined therein) used by the manufacturer in his factory to be utilised towards payment of duty leviable on final products falling within the description specified in the annexure. `Capital goods’ as defined include, inter alia, machines, machinery, plant and equipment, apparatus, tools or appliances (all the goods specified in exclusion Clause (i) of the Explanation to Rule 57A used for producing or processing of any goods for bringing about any change in any substance for the manufacture of final products, and components, spare parts and accessories of the aforesaid machines and other capital goods used for the aforesaid purpose. Hence the contention that any understanding of Rule 57A as conferring Modvat benefit on specified duty paid on parts of machines or machinery, plant, equipment, apparatus, appliances, tools used not in the manufacture of machines, machinery, but in the manufacture of final products using such machines, machinery, equipment etcetra will lead to untenable result, is not tenable. We are fortified by the following observations of the Supreme Court in J.K. Cotton Weaving and Spinning Mills Co. Ltd. v. S.T.O. 1965 (16) STC 63 = AIR 1965 S.C. 1310 :

“Goods used as equipments, as tools, as stores, as spare parts, as accessories in the manufacture or processing of goods . . . . . need not, to qualify for special treatment under Section 8(1), be ingredients or commodities used in the process of nor must they be directly and actually needed for turning out or creation of goods.”

(Emphasis supplied)

21. We will examine the meaning and content of the various expressions used in exclusion Clause (i) of the Explanation to Rule 57A of the Rules, namely, “machines, machinery, plant, equipment, apparatus, tools or appliances used for producing or processing of any goods or for bringing about any change in any substance in or in relation to the manufacture of final products.” Various dictionaries indicate the following :

McGraw-Hill Dictionary of Scientific and Technical Terms, IV Edition :

22. In Corporation of Calcutta v. Chairman of the Cossipore and Chitpore AIR 1922 P.C. 27, the Privy Council held that steel tank with its supporting structure for storage of water is not “machinery” within the meaning of proviso 3 to Section 10 of the Bengal Municipal Act. The Privy Council observed :

“A completed machine or a number of completed machines may, of course, according to the ordinary use of language, be properly described as ”machinery", so may those parts or members of a machine which when assembled, as it is styled, form a complete machine so also may some such of those parts, which when assembled with the other necessary parts, would form a complete machine be styled as “machinery”.

This decision has been followed by the Supreme Court in Commissioner of Income Tax v. Mir Mohammed Ali AIR 1964 S.C. 1693. The Supreme Court in M/s. Hemraj Gordhandas v. Assistant Collector of Central Excise and Others - 1978 (2) E.L.T. (J 350), observed :

“It is well-established that in a taxing statute there is no room for any intendment but regard must be had to the clear meaning of words. The entire matter is governed wholly by the language of the notification. If the tax-payer is within the plain language of the exemption, it cannot be denied its benefit by calling in aid any supposed intention of the exempting authority. If such intention can be gathered from the construction of the words of the notification or by necessary implication therefrom, the matter is different, but that is not the case here.”

23. The exemption notification which came up for consideration at the hands of the Supreme Court in Rohit Pulp and Paper Mills Ltd. v. Collector of Central Excise - excluded five kinds of paper from the benefit of the exemption. It was found that four out of the five varieties of paper belong to the category of Industrial paper. In the context, the Court held that the “noscitur a sociis” principle was applicable. The principle is that when two or more words which are susceptible of analogous meaning are coupled together they are understood to be used in their cognate sense. They take, as it were, their colour from each other, that is, the more general is restricted to a sense analogous to the less general. Associated words take their meaning from one another under this principle, according to which, the meaning of a doubtful word may be ascertained by reference to the meaning of words associated with it. When certain essential features or attributes are invariably associated with the words under consideration as understood in the popular and conventional sense, it is the colour of these attributes which is taken by the other words used in the definition though their normal import may be much wider. This, of course, is only a Rule of construction which has no place in a context where it is clear that wider words have been deliberately used to make the scope of the defined word wider. The Rule of Ejusdem Generis is a specific application of the broader principle of the “noscitur a sociis” principle. Almost all the words used in the exclusion Clause (i) relate to full and complete assemblages which could be described as machine, machinery, apparatus, appliance, equipment, plant and tool. The common factor or thread is the “self contained and complete” nature of the goods comprehended by these words. Assuming there is any doubt about proper meaning of any of the words, it has to be understood in this sense, that is, as a complete unit and not as a part of it.

24. The one common thread which runs through all these definitions is the self-contained or complete nature of the goods. Almost every one of the expressions take in self-contained, complete units or group or assemblage of parts. None of the expressions take in mere part unless it be that the part by itself is a self-contained or complete machine, apparatus, appliance, machinery, or tool. There is no controversy that machine used for manufacture of specified final products would be eligible input for the purpose of Rule 57A of the Rules, but for the exclusion Clause (i). That being so, the absence of specific reference to spare parts in the exclusion Clause (i) is of considerable significance. The Rule-making authority, which was aware that specified machines and such other goods are eligible inputs if they are used in the manufacture of specified final products, and specifically excluded machines and such other goods from the ambit of the Rule, must have been aware that spares of such machinery, machines or other goods would also be eligible inputs but did not specifically incorporate spares in the exclusion Clause (i). There is a faint argument that if spare parts are regarded as not excluded by virtue of exclusion Clause (i) and Modvat benefit is extended to such spare parts, the provision is likely to be misused and all the parts of a machine may be purchased and brought to the factory and the parts assembled to become a full machine to be used in the manufacture of final product and that could adversely affect the Revenue. This apprehension is not justified. Spares or parts concerned in these appeals are to replace worn-out parts or parts which require replacement. In the example cited, credit will be taken of the duty paid on the parts of the machine and used to pay duty on the machine manufactured out of the parts but machine as input is excluded by Clause (i). If, however, the parts are brought in C.K.D. condition, credit of duty paid on the C.K.D. packages is not used to pay duty on the machine since there is no “manufacture” of any machine and credit cannot be used for paying duty on the final product since C.K.D. package is itself treated as machine and machine as input is excluded under exclusion Clause (i).

25. The purpose of Rule 57A is to grant benefit of Modvat credit to manufacturers using specified goods in and in relation to the manufacture of specified final products. What could be the particular object intended to be achieved by introducing the exceptions in the exclusion Clause (i)? The clause excepts not one but a group of items. If the items were totally dissimilar with no common factor or thread, the items can be given their widest meaning. But almost all the items can be brought under an intelligible classification. The Government must have thought that only “self-contained, complete or whole” machines and not parts thereof are to be excluded. There is no reason why this logically limiting restriction should not be placed on the exclusion Clause (i). The manifest intention becomes amply clear on account of the absence of words “or parts thereof” at the end of the exclusion clause.

26. The language of exclusion Clause (i) is plain and clear. It carves out “machines, machinery, plant, equipment, apparatus, tools or appliances . . . . .”. These expressions indicate a self-contained unit, complete unit or whole unit but not any part thereof, unless of course, such part is also a complete unit in itself. The intention to exclude parts also along with machines, machinery and such other goods cannot be gathered from the language used, nor is it spelled out by necessary implication.

27. There is a controversy as to whether the Rules of Interpretation and Section notes and Chapter notes meant for classification of excisable goods for levy of duty could be relied on for interpreting the terms specified in Rule 57A for excluding them from the scope of the term “inputs”. The same doubt may arise in regard to use of these Rules for interpreting the terms specified in notifications. The West Regional Bench was inclined to answer the question in the negative contrary to the reliance placed upon such Rules by the East Regional Bench. In indicating this view, the West Regional Bench chose to disregard the decision of the High Court of Calcutta which is one of the few decisions of High Courts available on this aspect. The High Court of Calcutta in Singh Alloy and Steel Ltd. v. Assistant Collector of Central Excise - relied on the Tariff Headings and Sections (see paragraph 21). The High Court of Madras in Ponds (India) Ltd. v. Collector of Central Excise - , placed reliance on a Chapter note (paragraphs 5 and 18). The General Rule with reference to terms and expressions is contained in Section 20 of the General Clauses Act, 1897, according to which, when by any Central Act, or Regulation, a power to issue any notification, order, scheme, rule, form or by a law is conferred, then the expression used in the notification, order, scheme, rule, form or by a law, if it is made after the commencement of the Act, shall, unless there is anything repugnant in the subject or context, have the same respective meaning as in the Act or Regulation conferring the power. We fail to see how it can be asserted that Rules of Interpretation, Chapter notes, Tariff headings and Sections contained in the Tariff Act are irrelevant in the context of understanding terms and expressions used in Rules or notifications. Relevance of such aids of interpretation depends upon the context, the clarity or otherwise of the language used in the provision under consideration, the extent to which aids of construction are needed, and whether the aid so available is repugnant in the context and other relevant factors. It cannot be dogmatically asserted that in all cases, such aids of construction are relevant or safe guide. Relevance or otherwise of these Rules and Section and Chapter Notes or any aid of construction depends on the context arising in a given case.

28. An examination of various tariff items and Rule of Interpretation Section Notes and Chapter Notes in Schedule I to the Central Excise Tariff Act reveals that the Parliament, while dealing with various kinds of machines and the like, specifically provided for parts and accessories and the Rules of Interpretation were framed to provide guidance in the matter of locating the actual position of spares and accessories among the various items, where the items do not specifically deal with spares and accessories. The total absence of any such feature in the exclusion Clause (i) in the Explanation to Rule 57A of the Rules is a clear pointer to the intention of the Rule-making authority not to bring spares within the ambit of the exclusion Clause (i).

29. We have indicated the manner in which and the purpose for which felts, Phosphor Bronze, Stainless steel wire cloth, wire mesh and Dandy cloth are used in the machines in the manufacture of paper or paper products. They are definitely parts of machines not comprehended by the exclusion Clause (i) of the Explanation to Rule 57A of the Rules. Therefore, spares of such goods cannot be regarded as falling within this clause. We have also indicated the manner in which and the purpose for which copper wire is used in the manufacture of metal containers. Copper wire so used cannot be regarded as part of the machine. However, it is contended on behalf of the Revenue that it is an “appliance” within the meaning of the expression used in the exclusion clause. “Appliance” as generally understood is any tool or machine that is used to carry out a specific task or produce a desired result or an equipment that draws electric or other energy and produces a desired result. Copper wire used in the manufacture of metal containers is not a “tool” or “machine” that is used to carry out a specific function; nor is it an `equipment’ that draws any energy in producing a desired result. Hence it cannot be regarded as an “appliance”. It does not fall within the ambit of any of the other expressions used in the exclusion clause.

30. For the reasons indicated above we hold as follows :–

31. [Contra per : Lajja Ram, Member (T)]. - With due respects, I am not able to persuade myself to agree with the order proposed. I record my order as under -

32. The main issue for consideration in this group of appeals is, whether the parts of the paper making machinery are eligible for Modvat credit under Rule 57A of the Central Excise Rules, 1944 (hereinafter referred to as the `Rules’), when machinery as such is not so eligible.

33. Under Rule 57A of the Rules, credit of any duty of excise or the additional duty under Section 3 of the Customs Tariff Act, 1975 (51 of 1975), as may be specified in the Notification issued under that Rule, paid on the goods used in or in relation to the manufacture of the specified final products, is allowable. Such credit allowed is available for utilisation towards payment of duty of excise leviable on the specified final products whether under the Central Excises and Salt Act, 1944 (hereinafter referred to as the `Act’) or under any other Act. Such credit allowed, and utilisation of such credit, is subjected to the provisions of Section AA of Chapter V of the Rules (wherein Rule 57A is placed), and the conditions and restrictions that may be specified in the Notification under that Rule. The goods, whose duty paid is allowable for credit, when used in or in relation to the manufacture of the specified final products, have been referred to as `inputs’. There is no definition of the expression `inputs’ in the Rule’. It is to be understood only with reference to their usage in or in relation to the manufacture of the specified final products. This understanding is, however, subject to the specific inclusions and specific exclusions provided in the Explanation to Rule 57A. All the inputs used in or in relation to the manufacture of the specified final products are not eligible for credit under that Rule. The Explanation as provided in Rule 57A extends and restricts the coverage of Modvat credit in certain critical areas. The inclusions or exclusions are mainly in respect of certain groups or group of materials, and are not-notified with reference to particular tariff entries or specific well defined commodities. The following items have been specifically excluded from the coverage of Modvat credit :

34. In these proceedings, we are concerned with the expressions “machines, machinery, plant, equipment, apparatus, tools or appliances used for producing or processing of any goods or for bringing out any change in any substance in or in relation to the manufacture of the final products.” In view of the Explanation and in view of the specific exclusions, these items are not inputs for the purposes of Rule 57A. The issue for consideration is, as to what is the scope of these terms : machines, machinery, plant etc.; whether the constituent parts of these machines, machinery, plant etc. are or are not the `inputs’ for the purposes of Rule 57A.

35. These terms, machines, machinery, plant etc. have been mentioned without reference to any Heading or sub-heading of the Central Excise Tariff. From the arrangement in the exclusion clause, it appears that these terms have been used in a general sense. All of them meet the requirement of manufacturing apparatus as distinct from the manufacturing process. A machine, machinery or plant for producing the goods, for processing the goods, or for bringing about any change in any substance, may consist of a number of constituent items. They may be brought together or they may be brought separately. Each of such items may, however, be necessary for producing the goods, for processing the goods or for bringing about any change in any substance. These separate items taken separately may or may not be a machine, machinery or plant, but without them no goods could be produced or processed. The machine, machinery or plant may not serve the purpose without them. Without taking into account the constituents to the machine, machinery or plant, there may be nothing left out of the machine, machinery or the plant.

36. Let us take the expression `plant’, as used in the exclusion clause. The `plant’ is a configuration of a number of items. The various items constituting the `plant’ may cover a very wide area and may fall under different headings of the Tariff. In such a situation, if the constituents are taken as inclusive inputs, when the `plant’ is not, then the exclusion clause will be superfluous and will have no sense. In the case of Commissioner Of Income-Tax, Lucknow-Ii v. Kanodia Warehousing Corporation., 1980, ITR, Volume 121, at page 996, the Allahabad High Court, after analysing the various decisions on the subject, had observed at page 1001 as under :

“It would be seen that the test is whether the subject-matter involved, that is, a building or a structure or a part thereof, constitutes an apparatus or a tool of the trade of the taxpayer or it is merely a space where the taxpayer carries on his business. For this purpose the use which is made of the subject-matter under consideration is to be kept in view. If, as noted above, the building, structure or a part thereof is something by means of which the business activities are carried on, it would amount to a plant, but where the structure plays no part in the carrying on of those activities but merely constitutes a place within which they are carried on, it cannot be regarded as a plant.”

37. In the case of Commissioner Of Income-Tax v. Sri Krishna Bottlers Pvt. Ltd., 1989 ITR Vol. 175 at page 154, the Andhra Pradesh High Court had observed that the word `plant’ is to be given a very wide meaning. The thing need not be part of the machine used in the manufacturing process but could be merely an apparatus used in carrying on the business but having a degree of durability. It may have a passive or an active role. It was added by the Hon’ble High Court that a piecemeal approach is not permissible and the entire matter must be considered as a single unit unless, of course, the component parts can be treated as separate units having different purposes, and that the functional test is a decisive test. Some extracts from that judgment are given below :

A third principle was sought to be brought in by the decision in Hinton v. Maden and Ireland Ltd. [1960] 39 ITR 357 (HL), as a corrollary to the first one in Yarmouth v. France [1887] 19 QBD 647, namely, the principle that the thing need not be part of the machine used but could be merely an apparatus used in carrying on the business but having a “degree of durability”. That case, in our view, is, in fact, nearer to the facts of the present case before us in certain respects. There, the taxpayers were shoe manufacturers who, in the course of making shoes, used a large number of knives and lasts. The knives did not form part of the machine ( a press) with which they were used and the average life of a sole knife was three years, and of an upper knife, one year. The lasts similarly were not part of the machine but were required for making the shoes. Each last would have a life of about three years or sometimes four or five years. The majority of the House of Lords held that the “knives and lasts” were plant for they had acquired a degree of durability to be regarded as appliances kept for permanent use in carrying on the business and were not stock-in-trade “made for sale”. Like Yarmouth v. France [1887] 19 QBD 647, this decision too emphasises the “functional” test. Lord Reid referred to the dictum of Lord Lindley in Yarmouth v. France [1887] 19 QBD 647, and also to that of Uthwatt J. in J. Lyons and Co. Ltd. v. Attorney-General [1944], Ch. 281, and stressed on the “durability” of these knives and lasts in the context of the words “permanent employment in his business” used by Lindley L. J., and went on to say that these knives and lasts were not “stock-in-trade which comes and goes” (i.e., which is sold to the customer) but they were “durable” though not “permanently used”. He hastened to add that, no doubt, it may be difficult to treat as plant articles which were quickly “consumed or worn out” in the course of a few operations.

It is in 1986 that our Supreme Court decided Scientific Engineering House (P) Ltd. v. CIT [1986] 157 ITR 86. That case related to drawings, designs, plans, processing data, etc., of a company manufacturing scientific instruments and apparatus under an agreement with a Hungarian Company which agreed to supply the “technical know how” required for manufacture. The assessee paid for these drawings, etc., and claimed depreciation on the ground that the drawings, etc., were plant. After referring to Yarmouth v. France [1887] 19 QBD 647, Hinton v. Maden and Ireland Ltd. [1960] 39 ITR 357 (HL), Jerrold v. John Good and Sons Ltd. [1962] 40 TC 681 (CA), IRC v. Barclay, Curle and Co. Ltd. [1970] 76 ITR 62 (HL) and CIT v. Taj Mahal Hotel [1971] 82 ITR 44 (SC). Tulzapurkar J. observed that the definition of “plant” was “very wide” and that plant was not necessarily confined to an apparatus which is used in mechanical operations or processes or in industrial business. The article must have a degree of durability and (at p. 96).

“the test would be. Does the article fulfil the function of a plant in the assessee’s trading activity? Is it a tool of his trade with which he carries on his business ? If the answer is in the affirmative, it will be a plant,”

even though the articles had no part in the mechanical operation though, owing to technological advances, they might or would, in course of time, become obsolete, and approved the exhaustive judgment of P.D. Desai J. sitting with Diwan C.J. in Commissioner Of Income-Tax, Gujarat-Ii v. Elecon Engineering Co. Ltd. [1974] 96 ITR 672 (Guj), a decision which was also directly affirmed by the Supreme Court in 1987 in CIT v. Elecon Engineering Co. [1987] 166 ITR 66.

38. In so far as the machines and machinery are concerned, they are also items of wide import. Six types of simple machines are; the lever, the wheel and axle, the pulley, the inclined plane, the wedge and the screw. By combining the principles of simple machines, new and specialised machines are developed. The earliest decision on the subject is that of the Privy Council in the case of Corporation of Calcutta v. Chairman of the Cossipore and Chitpore Municipality, AIR 1922 Privy Council 27. This case arose under the Bengal Municipal Act. The question there was, whether a steel tank with its supporting structure for storage of water is `machinery’. The Privy Council observed in the first instance that the determination of the said question viz. whether a particular thing is `machinery’ or not, must, to a large extent, depend upon the special facts of each particular case and that no exhaustive definition is possible or advisable. All the same, they observed as follows : (at page 32)

“If their Lordships were obliged to run the hazard of the attempt they would be inclined to say that the word `machinery’ when used in ordinary language prima facie, means some mechanical contrivances which by themselves or in combination with one or more other mechanical contrivances, by the combined movement and interdependent operation of their respective parts generate power, or evoke, modify, apply or direct natural forces with the object in each case of effecting so definite and specific a result.”

Their Lordships observed at page 31 as under :

“A completed machine or a number of completed machines may of course, according to the ordinary use of language, be properly described as `machinery’, so may those parts or members of a machine which when assembled, as it is styled, form a complete machine so also may some such of those parts, which when assembled with the other necessary parts, would form a complete machine be styled `machinery’.”

39. Some extracts from the Andhra Pradesh High Court judgment in the case of India Leaf Spring Mfg. Co. (P) Ltd. v. Commissioner of Income Tax, 1989 ITR Vol. 175 at P/639 are given below :

In The State Of Mysore…* v. M.H.V Rao…. [1964] 15 STC 540, the Mysore High Court considered the question whether “cottage basin” used in a silk industry for spinning and reeling silk is “machinery” within the meaning of that term in the Mysore Sales Tax Act. It was found that the apparatus called “cottage basin” was “a complicated iron apparatus, built on an Iron stand”, and that it required some training and some degree of skill to operate it, it was operated by turning the main wheel by hand, and that the revolutions to which the main wheel is put to, are transmitted to other smaller wheels and spinning achieved as in the case of a “Charaka”. The Mysore High Court, applying the definition of “machinery” given in the Privy Council decision aforesaid, held that the said contrivance called “cottage basin” is a machinery.

In Industrial Machinery Manufacturers Pvt. Ltd. v. The State Of Gujarat [1965] 16 STC 380, the Gujarat High Court had to consider whether “humidifiers” used by cotton textile mills installed to maintain a certain humidity for the purpose of increasing the strength of yarn, avoiding breakages of yarn and improving the quality of yarn and which are essential to the modern textile industry, are “machinery” within the meaning of a particular entry in the Bombay Sales Tax Act. It was found that without the humidifiers it was not possible for any textile mill to run according to the modern technique. Again, applying the definition evolved by the Privy Council in the aforesaid case, it was held that “humidifiers” are machinery. The reasoning behind the said conclusion appears from the following observations (at p. 384) :

“Manufacture of goods means the process of converting raw materials into finished goods and whatever machinery is required for converting raw materials into finished goods would be machinery used in the manufacture of such goods. Every item of machinery which has a use in the manufacture of finished goods, which plays some role in the process of manufacture of finished goods and without which manufacture of finished goods would not be possible would be machinery used in the manufacture of such goods. Such machinery would be an essential and integral part of the plant which manufactures finished goods and would certainly satisfy the description that it is machinery used in the manufacture of finished goods ....”.

In The State Of Gujarat v. Minu Chemical Pvt. Ltd. [1982] 50 STC 339, it was held by another Bench of the Gujarat High Court that an article to be machinery must either be a completed machine or a number of completed machines, or parts or members of a machine which, when they are assembled, form a complete machine. The assessee therein was carrying on the business of manufacturing and selling chemicals. During the relevant accounting year, the assessee purchased certain articles and in the course of the assessment proceedings under the Gujarat Sales Tax Act, 1969, claimed set-off in respect of the amount of tax paid by it on the purchase of the above articles on the ground that the said articles were “machinery” used by it in the manufacture of goods for sale. It is in this manner that the question arose whether the articles purchased by the assessee constituted “machinery”. The Division Bench referred to the literal meaning of the word “machinery” in English dictionaries, and to the decision of the Privy Council referred to above, and held that inasmuch as the articles in question are found to be parts of the plant which consists of a processing unit, those articles must be treated as machinery.

In Ambica Wood Works v. The State Of Gujarat [1979] 43 STC 338, again a decision of the Gujarat High Court, it was held that “screen printing block tables” of wood manufactured by the assessee and sold to textile mills are “machinery”. It was found that the wooden tables supplied by the assessee, 42 metres in length and 60 inches in width covered with buff-leather, were fixed on the site to facilitate even printing on the cloth. It was found that the tables were brought in loose condition and assembled on the site by the suppliers. Steam pipes were fitted below the tables so as to supply the necessary heat for purposes of drying the prints instantaneously. It was also found that there was a machine for mixing colours mechanically so as to obtain the necessary consistency of colours. It was noted that the cloth is spread on the tables and with the help of screen print frames by moving hand-rolls, necessary designs are imprinted and there is an instantaneous drying of the printing on the cloth. In other words, the table supplied by the assessee became an integral part of the machinery which was employed in screen printing. In the circumstances, it was held that having regard to the size of the tables, the object for which they were sold and the use to which they were put and more particularly having regard to the fact that the tables had been fitted with steam pipes acting as instantaneous driers, the entire assembly of the table, pipes, screen printing and the rolls was nothing else but a machinery. It was further observed that some solid structure with no moving parts cannot be treated as machinery.

40. The final products - paper and paper boards are manufactured by using a group of machines, machinery and various other items constituting the machines, machinery and the plant. The prospective manufacturer organises purchases of different items of manufacturing apparatus from different sources. The various items are assembled and erected at the site. Each of these items when taken separately and individually may or may not be the machine or machinery. If the items like, felts, stainless steel wire cloth, wire mesh, dandy cloth etc. are missing, then the final product could not be produced and the desired purpose could not be served. There are various stages in the manufacture of the paper, such as, (i) processing of the raw materials, (ii) pulp making, fibre preparation and fibre bonding, (iii) formation of the paper web, sheet formation and drying, (iv) finishing, polishing, calendering, coating, (v) cutting, sorting, packing etc. In each of these stages of manufacturing different items, machines and machinery are used. Without these items, the machinery will not be able to serve the desired purpose and will not be a machinery for use in the manufacture of the paper. As machinery is excluded from the purview of the `inputs’ under Rule 57A, and as machinery is no machinery fit for production of the final products without the said items, such items stand excluded from the purview of the `inputs’ for the purposes of Rule 57A.

41. These items under consideration in these group of appeals when taken separately or individually cannot participate in the process of manufacture. Only when they are fitted to the machinery, [the machinery which is no machinery without them, and which could produce paper only after these items are fitted to the assemblage to make it a machinery for the purpose of Rule 57A], they can participate in the process of manufacture. Thus, these items are not an eligible inputs under Rule 57A of the Rules and they are excluded by virtue of exclusion Clause (i) of the Explanation to the said Rule 57A. Similar situation will exist in respect of number of other items, such as, Head Box, Cylinders, Suction Boxes, Press Rolls, Couch Rolls, Grinders, Refiners, Digesters and a host of other items which make a machinery for the processing of the raw materials, for the preparation of the pulp, paper web, paper sheet, and finished paper as such. At all these stages, different items are used and all of them had to be replaced sooner or later.

42. To make the paper sheet, a device called the Head Box spreads a mixture of water and fibres across the wire, a continuously moving screen. As the wire moves along the paper making machine called the Fourdrinier machine, also twin-wire machines, cylinder machine (for heavy paper and paper board), water drains off leaving a mat of fibres on the surface of the wire. Suction devices help to drain the water through the wire. When the mat is about 1/5 fibre and 4/5 water, the sheet has enough strength to be removed from the wire. The sheet then passes between large press rolls that squeeze water from the sheet until it is about 1/2 fibre and 1/2 water. Most of the remaining water is removed as the sheet passes over steam heated cylinders. Chemical bonds that hold the finished sheet together form during the drying process. The dried sheet may be smoothened by pressing it between the cylinders of a calendar stack. It is then wound into rolls at the reel.

43. There is no doubt that the goods felt, phosphorous berge, stainless steel wire, cloth mesh, dandy cloth etc. are not used directly in the manufacturing process, but participate in the manufacture of the final products through the machinery of which they are an essential requirements. Independently (without being a constituent of the machinery) they are not usable in relation to the manufacture of the paper.

In the case of Collector of C. Ex. v. Ballarpur Industries Ltd. - [ (SC)], the Hon’ble Supreme Court had distinguished between the manufacturing process, and the manufacturing apparatus. They had observed that the relevant test was not the presence of the raw material in the end product but the dependence of the end product for its essential presence at the delivery end of the process. The ingredients go into the making of the end product in the sense that without its absence, the presence of the end product as such is rendered impossible. The Hon’ble Supreme Court emphasised that this quality should coalesce with the requirement that its utilisation is in the manufacturing process as distinct from the manufacturing apparatus. (emphasis supplied).

In the case of M/s. J.K. Cotton Spinning and Weaving Mills Co. v. Sales Tax Officer, Kanpur (1965) 1 SCR 900. the Hon’ble Supreme Court were dealing with a Sales Tax entry which was very wide. It covered raw materials, processing materials, machinery, plant, equipment, tools, stores, spare parts, accessories, fuel and lubricants with regard to the manufacture of tiles for sale, the Hon’ble Supreme Court held that “building materials used as raw materials for construction of ”plant" cannot be said to be used as plant in the manufacture of goods.

In the case of Andhra Pradesh Paper Mills Ltd. v. CCE - (Tribunal), the Tribunal had held as under :

“The machineries, equipment and apparatus by themselves have been precluded from the benefit of the Modvat credit. Cascading effect of the duty paid on the machinery used in or in relation to the manufacture of the finished goods is not to be mitigated and as a corollory thereto the parts which are used in these machineries to make them functional also are not entitled to the benefit of the Modvat scheme. These parts which are used as replacement from time to time have to be held to have been used in relation to the machines themselves and not in relation to the manufacture of the goods. In the scheme of Modvat if the parts of the machines are included, there is no reason why the lighting equipment and other structural fittings which are used in the factory in which the goods are produced would not have to be allowed the benefit of the input duty relief under the Modvat scheme.”

In the case of Shimoga Steels Ltd. v. CCE - (Tribunal), the Tribunal had held that Tundish board used for the protection of the refractory bricks as a lining material for the furnace was a part of the furnace and would be taken to have been used in relation to the equipment for the manufacture of steel and for that reason benefit of Modvat credit could not be allowed thereon. In the case of Associated Cement Company Ltd. v. CCE - (Tribunal), the Tribunal had held that the benefit of Modvat credit could not be extended to goods in the nature of machines, appliances, tools, equipment etc. as also goods used in relation to the apparatus as distinct from the goods used in relation to the manufacture.

44. The issue before the Hon’ble Calcutta High Court in the case of Singh Alloys & Steel Ltd. v. Assistant Collector of Central Excise, - (Cal.), was entirely different then the issue in these group of appeals. The Calcutta High Court had observed as under :

“6. The object of the legislature appears to me to be to exclude from the genus of inputs, the species mentioned in the excluded categories because otherwise a manufacturer would be entitled to claim Modvat in respect of such inputs repeatedly as these would not be inputs which would be consumed in the process of manufacture. This is clear from a scrutiny of the excluded inputs.”

45. In that case furnace was a furnace even without a ramming mass. The product ramming mass with which the Hon’ble High Court were concerned was a chemical, classifiable under Heading 38.16 of the Tariff. Chapter 38 covered misc. chemical products. Heading 38.16 covered refractories cement mortars, concretes similar composition other than products of Heading No. 38.01. Heading 38.01 covered artificial graphite; colloidal or semi-colloidal graphite, preparations based on graphite or other carbon in the form of pastes, blocks, plates, or other semi-manufactures. They were said to be charged into the furnace, used when ingots were manufactured, lost their identity and were said to be consumed in the process. In the case before us, however, the machinery is not capable of producing paper without these items. These items are not used in the machinery, but they make the machinery, and the machinery is no machinery for production or processing of the goods in or in relation to the manufacture of the final product, without them. In fact, they make the machinery. They are not consumed in the process of manufacture, but as is common with any machinery their various constituents had to be replaced after they spent their life span, or as a consequence of wear and tear. These goods are not actually used in the physical or chemical process of manufacture as was the case in Shri Ramakrishna Steel Industries Ltd. v. Collector of Central Excise, Madras, - (Tribunal).

46. On the question as to why there is no reference to the parts in the exclusion clause under Rule 57A, it may be mentioned that no goods could be produced out of one or two parts of the machinery. As the reference was to the production of the goods, and the goods could not be produced unless all the parts are made into a machinery, the words “or parts thereof” were not used in the exclusion clause. Further, as held by the Hon’ble Supreme Court in the case of Pankaj Jain Agencies v. Union of India - (SC), the parts go with the machines. It was contended before the Hon’ble Supreme Court that with regard to the ball bearings there was no statutory duty on the parts. The Hon’ble Supreme Court held that even when there was no specific mention of parts and components of ball and roller bearings, they were not excluded from the purview of the levy. Similarly, in the case of Ballarpur Industries Ltd. v. Collector of Customs, Madras - (SC), it had been held that the machine part Granite Press Roll fitted with mild steel shell and end-plates and its cavities filled with concrete were a part of the machinery for making or finishing cellulosic pulp paper or paper board and that it was required to be classified with that machine. In the case of Quality Steel Tubes (P) Ltd. v. Collector of Central Excise, U.P. - 1995 (75) E.L.T. 17 (SC), the Hon’ble Supreme Court had held that the plant and machinery embedded to earth was not excisable, although certain items of the plant and machinery were purchased from the market and installed to form part of the tube mill. Various components were purchased from the market and these were assembled and installed at the site to form part of the tube mill. The tube mill in that case was not a specific machine but consisted of several components which after installation got embedded to earth and formed part of the plant.

47. Rule 57Q of the Rules was inserted in the Central Excise Rules, 1944 by Notification No. 4/94-C.E. (N.T.), dated 1-3-1994 in a separate Section AAAA under Chapter V of the Rules. Under the scheme covered by this and other Rules in the Section, credit of duty paid on capital goods used by the manufacturer of specified goods was allowable subject to the provisions of that Section, and the conditions and restrictions as the Central Government may specify in this behalf. In these provisions, there is no reference to the `inputs’ as in the case of Rule 57A. The coverage of the capital goods is different than the coverage of the inputs. A number of goods have been specifically included in the meaning of the capital goods for the purposes of the scheme under Section AAAA of the Rules. It is seen that the scheme under Rule 57Q is not akin to the scheme under Rule 57A and that it had no bearing on the interpretation of Rule 57A.

48. In so far as the use of copper wire in the process of manufacture of metal containers is concerned, the situation is different. The copper wire is not a part of the machinery, but is used by the machinery in relation to the manufacture of the metal containers. I, therefore, agree with the conclusions drawn with regard to the copper wire being an admissible input.

FINAL ORDER

49. Appeals are disposed of as indicated in paragraph 30 according to the majority view.