[Order per : Justice U.L. Bhat, President]. - This is an application for referring a question of law to the High Court. We have heard both sides.
2. The question relates to the claim of the manufacturer of Caustic Soda for Modvat credit under Rule 57A of the Central Excise Rules, 1944 in respect of duty paid on Titanium metal anodes used as anodes in electrolysis of Sodium Chloride Brine. Under this provision a manufacturer of specified final products is entitled to credit of specified duty paid on specified inputs used in or in relation to the manufacture of final products subject to the provisions of Section AA of the Rules and the conditions and restrictions that may be specified in any of the notification required to be issued under the Rules. The Explanation to the rule is in two parts; the first part is inclusive in nature and the second part is exclusive in nature. The exclusion clause has five sub-clauses. According to clause (i), for the purpose of the rule, “inputs” does not include 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 the final products. The stand taken by the Department is that Titanium metal anode is part of machine or machinery or plant and the exclusion clause (a) which includes machine, machinery, plant etc. would necessarily comprehend part of machine, part of machinery or part of plant etc. This contention was accepted by the Assistant Collector but rejected by the Collector (Appeals) who hold that the manufacturer in this case would be entitled to Modvat credit in respect of duty paid on titanium metal anodes used in the process of electrolysis. Department therefore filed an appeal before the Tribunal. The Tribunal dismissed the appeal agreeing with the view taken by the Collector (Appeals). The order of the Tribunal relied on a number of earlier decisions of the Tribunal relating to Graphite anode and Titanium anode to hold that Modvat credit is available. Dealing specifically with the controversy, the Tribunal in this appeal proceeded on the basis that Titanium anode is part or machine, plant or machinery and since it is not machine, plant or machinery, the exclusion clause (i) is not attracted. It is also brought to our notice that Larger Bench of Tribunal in Appeal No. E/21/88 and batch of appeals decided on 6-6-96 [ (Tribunal)] agreed with the similar contention raised by other manufacturers that parts of machine etc. are not covered by exclusion sub-clause (i).
3. In view of the consistent response of the Tribunal in regard to the question in controversy, it is contended for the respondents that there is no question of law arising which requires to be referred to the High Court. According to the Department, there is a question of law arising which requires to be so referred.
4. There can be no dispute that the controversy spells out a question of law arising for determination. The question of law is whether exclusion of machine, machinery, plant etc. would amount to exclusion of part of machine, part of machinery, part of plant etc. The only answer of the respondent is that this question of law has been finally decided by the Tribunal already in a number of decisions and also by a Larger Bench of the Tribunal recently. The fact that the Tribunal has taken a particular view, may be even consistently, does not mean that there is no question of law arising for consideration. Admittedly, there is no reported decision of the Supreme Court or any other High Court in regard to this question of law. Unless it can be said that the answer to the question of law is self-evident or is concluded by decision of any Court binding on the Tribunal, reference cannot be denied. It is pointed out for the respondent that in certain other similar cases the Tribunal has declined to make a reference on the ground that the Tribunal has already taken a view in the matter. That does not bind the hands of this Bench from independently considering whether a question of law arises for consideration in this case which needs to be referred to the High Court.
5. We are satisfied that the following question of law arises out of the order of the Tribunal which requires to be referred to the High Court of Punjab & Haryana. A statement of the case will be drawn up and the papers forwarded to the High Court.
Question of Law
“Whether exclusion of machine, machinery, plant, equipment, tool under exclusion clause (i) of the Explanation to Rule 57A of Central Excise Rules, 1944 would cover exclusion of parts of machine, machinery, plant, equipment, tool?”
6. The application is disposed of.
Statement of Case
7. M/s. Punjab Alkalies and Chemicals Ltd. (Respondent in the appeal) are engaged in the manufacture of caustic soda. Caustic soda is manufactured by electrolysis of Sodium Chloride Brine. Electrolysis is done by passing electricity through Electrodes. Titanium metal anode coated with a very thin film of special metal is used as anode and continuous film of mercury flowing over steel bottoms is used as Cathode. On the basis that Titanium anode is used as input for manufacture of caustic soda, the manufacturers were availing Modvat credit of duty paid on the Titanium anode under Part AA of Chapter V of the Central Excise Rules, 1944. A show cause notice was issued by the Department to the manufacturers requiring them to show cause why demand should not be of Rs. 42,74,743.50 on account of credit wrongly availed under Modvat Rules.
The Assistant Collector after hearing both sides rejected the contention of the manufacturer and held that the Titanium Anode is merely in the nature of plant, equipment or apparatus or appliances and thus excluded from eligibility to Modvat credit under exclusion clause (i) of the Explanation to Rule 57A of the Rules.
Being aggrieved by the order of the Assistant Collector, the manufacturers preferred an appeal before Collector (Appeals) who after personal hearing passed an order holding that Titanium Anode is essentially required in the manufacture of caustic soda and is eligible for Modvat credit being an input used in relation to manufacture and not being an item excluded under exclusion clause (i) of the Explanation to Rule 57A of the Rules. He set aside the order of the Assistant Collector and allowed the appeal, relying on the decision of the Tribunal in Gujarat Alkalies and Chemicals Ltd. v. Commissioner of Central Excise - .
The Department filed an appeal before CEGAT, New Delhi. The Tribunal held that the Titanium anode used in manufacture of caustic soda is an input and is not covered by exclusion clause (i) of the explanation to Rule 57A of the Rules as it is not machinery, equipment or apparatus etc. It has been held by Tribunal that the Titanium anode is part of plant, equipment, machinery but not equipment or apparatus. It has been further held by the Tribunal that there is no provision excluding a part of plant, machinery or equipment from the scheme of Modvat credit relying on the decision in . Thus the Tribunal rejected the appeal of department and upheld the order of the Collector (Appeals). The Tribunal noticed that modvat eligibility of electrodes has been accepted by the Tribunal in some decisions namely , , .
Being dissatisfied with the order of the Tribunal the department preferred the Reference Application before the Tribunal for referring a question of law, that is, whether the CEGAT can exercise of its appellate power overriding the Central Excise Rules by allowing modvat credit under Rule 57A on parts of the machinery which is otherwise not admissible under sub-rules. The Tribunal held that the following question of law arises for consideration and refer same to High Court of Punjab and Haryana.
Whether exclusion of machine, machinery, plant, equipment, tools under clause (i) of the explanation to sub-rule (1) of Rule 57A of the Central Excise Rules, 1944 would cover exclusion of parts of the machine, machinery, plant equipment, tool.