ORDER

K. Sankararaman, Member (T)

1. These two appeals by M/s. Orient Paper Mills involve a common issue as to the admissibility of Modvat Credit for Felts, Bronze Metal Cloth, Wire Cloth and Dandy Covers used by them in the manufacture of paper, their final product. Their claim was negatived by the Assistant Collector of Central Excise, Rourkela on the ground that these are in the nature of equipment/tools/appliances. The decision of the Assistant Collector was upheld by the Collector of Central Excise (Appeals), Calcutta while rejecting their Appeals addressed to him. The two appeals presently before us pertain to credit taken in two different months, namely September 1989 and October 1989 in respect of the goods mentioned. The Appeals were heard together and are being disposed of by this common order.

2. Shri S.K. Bagaria, learned Counsel for the appellants, argued their case. He stated that the issue involved in these appeals is covered in their favour by two decisions (similar to each other) of this Bench. These are Collector of Central Excise v. Emami Paper Mills Ltd. - MANU/CK/0055/1991 : 1992 (61) E.L.T. 489 and Straw Products Ltd. v. Collector of Central Excise MANU/CK/0009/1991 : 1992 (59) E.L.T. 572. The only difference or additional factor now is that one of the disputed inputs is Dandy Cover assessed as a part of machine under the machinery Chapter 84. This item is not covered by the said decisions. The learned Counsel, however, submitted that the same ratio would apply to dandy cover also. He stated that, apart from this item, there is no distinction between the present Appeals and the earlier decided cases cited by him on the factual aspects and the legal position. There is no High Court judgment to the contrary. He pointed out that two principles had been laid down in these cases :

(1) The exclusion from the scope of the expression input, as per the Explanation in Rule 57A was only of the listed items and not their parts.

(2) The Tariff Classification of the inputs is relevant for deciding whether they are machines, machinery mentioned in the said Explanation under Rule 57A also.

3. Shri Bagaria then stated that the Honourable Calcutta High Court has, in a recent judgment in the case of Singh Alloys and Steel Ltd. v. Assistant Collector of Central Excise, reported in MANU/WB/0305/1993 : 1993 (66) E.L.T. 594, held that the items Dolopatch Mix, Magnesite Peas, and Ramming Mass are eligible for Modvat benefit when used in or in relation to the manufacture of steel. The contention of Revenue that these form part of the machinery because they are really used to protect the machinery and not for the manufacture of the ingot itself was negatived by the Court. It was observed that the items are chemicals classified as such in the Tariff. Shri Bagaria submitted that the decision of the Tribunal in Straw Products and Emami Paper Mills in applying the Tariff classification for interpreting the expressions machines, machinery etc. can be said to have been endorsed by the Honourable High Court. He also referred to the judgment of the Madras High Court in Ponds (India) Limited v. Collector of Central Excise, reported in MANU/TN/0195/1992 : 1993 (63) E.L.T. 3. He then submitted that the West Regional Bench of the Tribunal has, in a recent decision in the case of Divecha Glass Works v. Collector of Central Excise, differed from the view of this Bench in the Straw Products and Emami Paper Mills cases and referred the matter to the President of the Tribunal for resolving of the conflict of views by a larger Bench. In his view, the Emami Paper Mills and Straw Products decisions are correct and should be followed. In fact, these decisions are on stronger ground than the Singh Alloys case, the inputs being different and the manner of use also different. He also pointed out that the inputs in the Divecha Glass Works case are also different, being electrode wires and not felt, metal cloth etc. used in the paper industry.

4. The arguments were countered by the departmental Representatives Shri S. Dutt Majumder and Shri N.K. Mandal. Shri Mandal started the reply and stated that the Department's decision in disallowing Modvat Credit for the goods in question is in conformity with the Tribunal decisions in the following cases

(1) Ashim Products v. Collector of Central Excise - MANU/CK/0008/1990 : 1990 (50) E.L.T. 120 (Tribunal)

(2) Sirpur Paper Mills v. Collector of Central Excise -MANU/CC/0066/1991 : 1991 (56) E.L.T. 649

(3) Andhra Pradesh Paper Mills v. Collector of Central Excise - MANU/CC/0008/1990 : 1990 (50) E.L.T. 252

(4) Delta Paper Mills Ltd. v. Collector of Central Excise - MANU/CC/0002/1992 : 1992 (62) E.L.T. 58

Continuing the arguments, Shri S. Dutt Majumder, learned Senior Departmental Representative stated that the goods in question in the Singh Alloys case were different from the inputs in the present cases. The Department has also appealed against the said judgment. The case of the materials in question is not a fully settled issue. The object of the Modvat Scheme is to avoid the cascading effect of duty paid on the inputs. The inputs are used in the manufacturing process and get consumed. Machinery is capital investment. The value of capital goods is not to be considered in Modvat Scheme. It is not VAT but MODVAT. The modification of the VAT system, is as per the parameters laid down in Rule 57A. He then referred to the Tribunal decisions cited by Shri Mandal which are in favour of the Department and submitted that these represent the correct view. He referred to the HSN Explanatory Notes wherein Dandy Rolls are held to be classifiable under Heading 8439 and hence treatable as parts of machinery.

5. Shri Majumder then contended that, for the proper interpretation of the expressions like machines, machinery etc. for the purpose of MODVAT, resort cannot be had to the Tariff. He cited the Tribunal decisions in the following cases where goods used for maintenance of machinery were held to be not construable as used in or in relation to the manufacture of the final products :-

(1) MANU/CM/0001/1989 : 1990 (45) E.L.T. 84 (Tribunal) (WRB) - Mukund Iron & Steel

(2) MANU/CM/0024/1989 : 1990 (48) E.L.T. 552 (Tribunal) (WRB) - Mukund Iron & Steel

(3) MANU/CC/0034/1988 : 1988 (38) E.L.T. 485 (Tribunal) (SRB) - Satya Steel Strips

(4) MANU/CK/0016/1990 : 1990 (50) E.L.T. 295 (Tribunal) (ERB) - A.C.C. v. Collector of Central Excise

Shri Majumder then referred to the reference made by the West Regional Bench of the Tribunal to the President for constitution of a larger Bench in the Divecha Glass Works case wherein they had clearly differed from the stand taken by this Bench in the Straw Products Ltd. case. He, therefore, submitted that this Bench may take a similar stand and refer these appeals also to the President of the Tribunal for decision by a larger Bench.

6. We have considered the submissions of both the sides. We have perused the record and also gone through the decisions cited by both the sides. Reliance has been placed by the learned Counsel for the appellants on our decisions in Straw Products Ltd. and Emami Paper Mills cases. In these cases it was held that Felt, Stainless Steel and Phosphor Bronze Wire Mesh, Machine Cloth, Metal Cloth and Dryer Fabrics are eligible for Modvat credit as inputs used in or in relation to the manufacture of paper. The contention of the department that these are parts of machines or machinery or appliance or equipment which are the excluded items under Rule 57A was examined. It was held that the excluded items are complete items of machines, machinery, appliance etc. and not their parts. Note was taken of the fact that the subject items were classified under Tariff Headings different from those in the machinery Chapters for the purpose of assessment and that the permissible items of inputs and final products covered under the Modvat Scheme have been referred to in the relevant Notification 177/86 dated 1-3-1986 in terms of Chapters of the Tariff Schedule and it was held that these items were, therefore, outside the scope of the excluded items. We rejected the alternative contention raised by the department that, even if it is held that these items are not complete machines or appliances but are only parts of a machine, they would still be covered by the expression machinery which, by definition in dictionaries, covers not only a set or combination of machines but moving parts of machines also. We observed that the expression machinery appears in the subject Explanation clause in the company of machines, appliance, apparatus, equipment etc. which are complete articles capable of independent functioning and in their company the expression machinery will take on the meaning of complete set of machines and not parts thereof. It was also held by us that the excluded items under the said Explanation Clause being specified therein and parts of machines not being specifically covered it will not be permissible to read parts into the said clause. We then observed that the question whether the inputs under consideration are the excluded type would become relevant only if they are found to be used in or in relation to the manufacture of the specified final products and if the finding is that they are not so used the next test as to whether they are of the excluded type of inputs would be irrelevant and superfluous. We finally held that the subject inputs are used in or in relation to the manufacture of paper and that they are not of the excluded category. The relevant portions of our order in the Straw Products case are extracted below :-

"18A. We have already reached a finding that felt and wire nettings, by themselves are not machines, machinery etc. Further, even, if it is held that these items are parts of the machines which point, however, was contested by Shri Lakshmikumaran, their eligibility for modvat benefit does not stand excluded by the terms of the Explanation Clause under Rule 57A. Parts of machines as such do not figure in the said provision and cannot be inducted into it by analogy or corollary. In this we agree with the ratio laid down by the South Regional Bench of the Tribunal in the Cominco Binani case referred to earlier. We have to, with respect, differ from their observations in the Andhra Pradesh Paper Mills case that as a corollary to the provision for not mitigating the cascading effect of duty paid on machines, the parts which are used in these machines to make them functional are also not entitled to modvat benefit. We disagree with this view as it is at variance with their earlier one set out in Cominco Binani case referred to above that the stand of the department that as equipments are excluded, parts of equipment should also be taken to be excluded has no legal basis and that there is no warrant to read the parts into the description of excluded category of goods. We share this latter view. However, in the Andhra Pradesh Paper Mills case, the South Regional Bench had, after making the observations referred to above held that wire netting and felts are essentially parts of the paper making machinery and their main use is to keep the machinery functional and that they must be said to have been used in relation to the machines themselves and not in the manufacture of the goods. This is an important aspect of the matter which puts into the background the other question whether the exclusion of machines would extend to the exclusion parts thereof for the purpose of granting modvat benefit. If the said goods are used in relation to the machines and not used in the manufacture of the final products, there is no question of modvat being admissible. In a number of decisions of different Benches of the Tribunal including ours, it has been decided that for goods used in relation to the machines or for their repair or maintenance modvat is not admissible. Thus lining of a furnace with refractory material for the purpose of removing defects or gaps in the surface of the furnace has been held to be repair and maintenance and not in relation to the manufacture of the final products. The products like ramming mass used for above-mentioned type of use in relation to a furnace have a limited role to play which is in respect of such furnace and not in relation to manufacture. Such is not the case with felt or wire netting which is fitted to the paper making machine where it takes part in the process of manufacture of paper. Such a role is otherwise than as a machine or any other type of excluded goods. It cannot be said that the felt and wire netting are meant only for being fitted in the paper making machine and their role ends there and thereafter they have no further role to play in the manufacture of paper. It was clarified by Shri Lakshmikumaran that these inputs are used for the purpose of draining the water from the wet pulp and for moving the moist or wet web of paper from the machine to the dryer house where it is dried by steam. These also impart certain surface properties to the paper. We also take note of the fact that the different Benches of the Tribunal had been treating goods like electrodes which are used in electrolysis process say, in the manufacture of caustic soda, as eligible inputs for the purpose of grant of modvat. The decision of the West Regional Bench in the case of Gujarat Alkalies & Chemicals v. Collector of Central Excise reported in MANU/CM/0039/1989 : 1989 (41) E.L.T. 424 and of the South Regional Bench in Cominco Binani Zinc Ltd. v. Collector of Central Excise -MANU/CC/0036/1990 : 1990 (48) E.L.T. 283 had been cited before us. Going by the same we hold that the items felt and wire netting are inputs used in or in relation to the manufacture of paper and not used in relation to the machines only.

19. We have given the above finding only in the context of the decision of the South Regional Bench of the Tribunal in the Andhra Pradesh Paper Mills case referred to above. This particular line of approach had, however, not been specifically stressed in the argument before us. The emphasis then was only, whether or not, these are parts of the paper making machine/machinery or whether these are themselves machinery. Shri Lakshmikumaran contended that these are not parts and even if they are such parts they do not get excluded from modvat benefit because only machines, machinery are. Further, in the department's appeal as well as in the Order-in-Appeal and Order-in-Original of the Assistant Collector, the stand taken is that they are parts of the machine and that they are not used in or in relation to the manufacture of paper. In fact, the finding appears to be that they cannot be said to be used in the manufacture of paper because they are only parts of the machines. This is not the same as stating that their use is only in relation to the machine and not in relation to the manufacture which was the line taken by the Tribunal in the above mentioned case. However, giving the benefit of such an approach on the part of the department we have given our decision from this angle also."

[Source : 1992 (59) E.L.T. 581, pp 18A & 19]

7. Shri Bagaria, learned Counsel for the appellants had referred to the judgment of the Honourable Calcutta High Court in Singh Alloys & Steel Ltd. v. Assistant Collector of Central Excise reported in MANU/WB/0305/1993 : 1993 (66) E.L.T. 594. In the said case, the contention of Revenue that the inputs under contention therein, namely, Dolopatch Mix, Magnesite Peas and Ramming Mass used in relation to the manufacture of steel come within the excluded items in the Explanation to Rule 57A as they form part of the machinery as they are really used to protect the machinery and not for the manufacture of the ingots itself was rejected by the Honourable Court. It was held that the items certainly do not come within the Dictionary meaning of machines or machinery or instruments or appliances. The items are chemicals and have been classified as such in the Tariff. Merely because the chemicals are used for the machinery it does not make the chemicals machinery. It does not matter that the items are used in the Machinery as per the purpose of the machinery. The only relevant question is whether they are used in or in relation to the manufacture of ingots. The Honourable Court also rejected the argument that the items were appliances meaning something that is applied and remarked that there is no warrant to give this strained meaning to the word. The scope of the expression appliance was also interpreted by the Honourable Court by reading it ejusdem generis with the words preceding it in the Explanation Clause of Rule 57A. Those items constitute a specific category or a distinct genus and the expression appliance should be construed with reference to that genus or category. The definition of the expressions apparatus, appliance, equipment, machine, machinery, plant and tool as given in McGraw Hill Dictionary was extracted in the judgment and it was held that none of these definitions would include items like chemicals such as the items in question. It was also noted that as far as the Tariff Act is concerned, Plant, Machinery, Machines, Equipment, Apparatus, Tools and Appliances are all classified under Headings and Sections which are totally different from the Headings and Sections under which the items are classified. As pointed out by Shri Bagaria, learned Counsel, the significance and applicability of the Tariff provisions for deciding eligibility of modvat benefit has been adopted by the Honourable Court. This was one of the grounds of our decision in the Straw Products and Emami Paper Mills cases. We had referred to the Tariff placement of the items considered by us to rule them out as machines, machinery, apparatus, appliance etc. which are complete items. The identity or status of items like felt as machinery parts is, however, accepted by us now in view of Chapter Note 7(b) under Chapter Note 59 which lays down that Heading 59.09 applies to Textile articles of a kind used for technical purposes (for example, textile fabrics and felt, endless or fitted with linking devices, of a kind used in paper making or similar machines, gaskets, washers, polishing discs and other machinery parts. As the general expression at the end is other machinery parts, it clearly implies that what have been described earlier are also machinery parts. To that extent, our observation in the Straw Products Ltd. & Emami Paper Mills decisions about these items not being parts of paper making machine was not correct and we stand corrected. However, the identity of felt as a paper-making machine part does not, by synecdoche, change into such such machine itself. In the Excise Tariff or in the notifications, while there are a number of entries referring to machines themselves, parts and accessories of machines are separately provided for. Thus the sub-headings 8409.00, 8414.91, 8414.99, 8431.00, 8466.00, 8473.00, 8476.91, 8476.99, 8481.91, 8481.99 specifically cover parts and accessories of particular specified machines. In the scheme of the Tariff if complete machines and their parts are treated separately, the same approach would be appropriate for Rule 57A also.

8. During the arguments before us, Shri Majumder learned Senior Departmental Representative referred to a recent decision of the West Regional Bench of the Tribunal in Divecha Glass Industries v. Collector of Central Excise, Bombay III (Order No. 447/ 93-WRB) wherein that Bench had disagreed with our views in the Straw Products Ltd. Appeal and referred the matter to the President of the Tribunal for constituting a larger Bench to resolve the conflicting views. The arguments advanced by them while taking the said decision have been more elaborately brought out in their subsequent Order No. 1726-28/93-WRB, dated 22-9-1993 in the case of B.K. Paper Mills v. Collector of Central Excise, Bombay II reported in MANU/CM/0041/1993 : 1993 (68) E.L.T. 452 (Tri.). We have carefully perused this order and noted the points of difference and the reasons elaborated by them. The position as perceived by us is discussed below.

In para 6(7) of the order of the West Regional Bench they have observed that they are unable to agree with our view that since felt and wire net are not figuring in the machinery chapters of the Central Excise Tariff, they would not be hit by the Explanation to Rule 57A. As held by us in the Straw Products Ltd. decision, the Chapter Notes and Section Notes though primarily meant for interpreting the Tariff entries are applicable for deciding the admissibility of modvat benefit under Rule 57 A also. This approach is in line with another decision of the Honourable Calcutta High Court in Naffar Chandra Jute Mills Ltd. v. Assistant Collector of Central Excise -MANU/WB/0198/1993 : 1993 (66) E.L.T. 574. The contention of the Revenue in the said case that the (Interpretative) Rules are limited to interpretation of the Schedule and cannot serve as guidelines to interpret a notification was held to be unacceptable. The treatment of the goods in question in Straw Products case as textile or metal articles for assessment purposes has been relied upon by us as one of the reasons for holding them to be not machines, machinery, appliance.

9. We had, in the Straw Products and Emami Paper Mills cases, not accepted the contention of the Departmental Representative that the Dictionary meaning of the expression machinery will cover parts of machines and accordingly the items in question will stand excluded for Modvat purposes. We had noted that the said expression has generally been defined in dictionaries as a set or combination of machines. It has also been defined in some Dictionaries as component parts of a complete machine (Webster New Twentieth Century Dictionary Unabridged) and parts of a particular machine or machine or as working parts collectively (Reader's Digest Dictionary). However the expression had come in for judicial interpretation by Courts in India. We had referred to the decision of the Honourable High Court of Gujarat in Ambica Wood Works v. State of Gujarat, reported in 1979 Volume 43 Safes Tax Cases 338. This decision needs to be looked into very closely since the West Regional Bench had also examined this very judgment in their order for coming to a conclusion that the finding of the High Court would actually seem to support the Revenue's cause on the present Modvat question. We, however, do not think so. The High Court was concerned in the said case with the applicability of the Entry 15 of Schedule C to the Bombay Sales Tax Act, 1959, which was as follows :-

15(I) Machinery used in the manufacture of goods and spare parts and accessories thereof, but not machinery and spare parts and accessories thereof specified in any other entry in this or any other schedule.

It will straightaway be seen that the crucial entry in the said case specifically covered spare parts and accessories. The Tribunal had held that the wooden tables though they can form part of screen print block tables cannot, by themselves, form part of printing machinery as such. They were of the view that the tables could be said to be parts of screen print tables and confirmed the orders of the authorities below that screen print block tables were not covered by Entry 15 (extracted supra). The Court disposed of the Reference holding that the said Entry covered the goods in question. They examined the definition of machinery in Webster's New Twentieth Century Dictionary : Unabridged, Second Edition (Page 1080). The relevant meaning of the term machinery was as follows :-

1. The component parts of a complete machine

2. Any combination of persons or things, the harmonious working of which results in a desired end.

They observed that if there is a combination of things, the harmonious working of which results in a desired end, that collection of things would be known as machinery. They held as not well founded the contention that there was no machinery at all for the purpose of printing and if there was no machinery for printing the cloth, in the very nature of things, there cannot be any question of any spare parts or accessories thereof since the entire process of printing was hand printing with the help of screen print frames by moving hand rolls. They took note of the fact that the Tables were fitted with steam pipes below them with a view to have instantaneous drying of the print and that mixing of colours was done mechanically by a machine which was fixed at a distance from the job of printing carried on the Tables. They held that the fact that, by and large, the printing work was done manually could not have a conclusive bearing on the question whether the Tables are spare parts and/or accessories of the machinery for printing. They observed that mere assembly of things or articles would not amount to a machinery. Some solid structure with no moving parts cannot be termed as machinery. It would be machinery only if such structure, complete in itself, has moving parts in relation with others when they move interdependently by application of force - mechanical or manual - with an avowed object to produce a given product. In other words, in order to be machinery, the following four factors must exist, namely -

(1) a complete and integrated collection of several objects or articles;

(2) these objects or articles should interact in unison upon or with each other;

(3) This interaction is prompted by application of force which may be manual or motive power ;

(4) The movement should be with a view to do some specific activity or to obtain specific or definite result.

10. The Court then referred to the decision of the Privy Council in Corporation of Calcutta v. Chairman of the Cossipore and Chitpore Municipality (AIR 1922 P.C. 29) and took note of the observation of the Judicial Committee. The Judicial Committee observed in this connection as under at pages 31 and 32 :

"...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' but none of these conditions exists in the present case...

The word 'machinery' must mean something more than a collection of ordinary tools. It must mean something more than a solid structure built upon the ground, whose parts either do not move at all or, if they do move, do not move the one with or upon the other in interdependent action with the object of producing a specific and definite result.

Their Lordships concur with Lord Davey in thinking that there is great danger in attempting to give a definition of the word 'machinery' which will be applicable in all cases. It may be impossible to succeed in such an attempt. 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. The tank and its supporting structure do not satisfy this definition.

But their Lordships think that, however skilful definitions of 'machinery' may be framed, the determination in any given case of what is or is not 'machinery' must, to a large extent, depend upon the special facts of that case."

11. The Honourable Gujarat High Court then considered a decision of the Mysore High Court in D.B. Bhandari v. State of Mysore - 1967 (20) STC 25 where the above-mentioned Privy Council decision was referred to and they paraphrased the meaning given by the Privy Council to the word 'machinery'.

"In simpler language, machinery is a contrivance whereby several things are put together to work such a way that force may be applied at a most convenient way to get a particular work or an item of work done or to produce a specific article or manufactured goods."

Agreeing with the above views, Honourable Gujarat High Court held that having regard to the size of the tables supplied and also having regard further to the object for which they had been sold and the use to which they were put to and, more particularly having regard to the fact that the tables were fitted with steam pipes which act as instantaneous driers, the entire assembly of the tables, pipes and screen prints and the rolls was nothing but a machinery and consequently the tables used therein were accessories of the machinery. They, therefore, expressed their opinion that the Tribunal had committed an error of law in construing the term machinery, its spare parts and accessories by taking a very narrow view of the same, impressed undoubtedly with the fact that the entire printing work was done with manual work. It was observed by the Honourable Court that the Tribunal erred here also because they did not attach sufficient importance to the fact that part of the drying work done instantaneously was carried out with the aid of steam pipes fitted below the tables and the mixing of colours was done mechanically by a machine fixed at a distance from the job of printing carried on the tables. On that basis, the High Court disposed of the Reference Application made to them answering the question whether the Tribunal was right in holding that screen print block tables are not covered by Entry 15 of Schedule C to the Bombay Sales Tax Act, 1959 in the negative.

12. From the above details of the case, it is seen that the Wooden Tables were fitted with the required articles and put to use in the colour printing of textiles. The entire arrangement was held to constitute a machinery and the tables, its accessories. The finding was not that the tables were themselves machinery. The matter was decided in favour of the applicant - assessee holding the entire set up as a machinery, the question whether the source of power was human or electricity, steam etc. making no difference. The Tribunal's finding that the entire system in question was not a machinery and the tables were not spare parts and accessories of a machine as there was no machinery in the printing as that was entirely done by hand was held to be erroneous for the reasons discussed. This decision relates to a matter quite different from the present one where the question is whether items like felt, wire cloth, bronze metal cloth and Dandy cover are machines or machinery and whether their being machinery parts would make them machines or machinery. The Ambica Wood Works decision of the Honourable Gujarat High Court does not apply to the present case as the relevant Tariff entry in that case specifically covered spare parts and accessories also. The Honourable Court had, in the facts and circumstances of the case before them and in the light of the legal position arising from the actual wording of the relevant provision, held that the wooden tables in question were parts and accessories of the screen printing machinery and not that such tables were themselves machinery. The specific coverage of parts and accessories in the relevant schedule played its role in the decision. Rule 57A with which we are concerned is a different cup of tea.

13. The items excluded under Rule 57A are only machines, machinery, plant, equipment, apparatus, tools or appliances. Parts and accessories are not provided for and accordingly it was held by us that the items in question cannot be jettisoned from the Modvat Scheme.

14. In Para 7(5) of their order, the West Regional Bench had posed the question whether in the event of parts of machines being held to be not excluded, we can allow such parts to be brought in under Modvat Scheme for assembly of machines at the factory and take the duty credit on such parts for utilisation towards the duty payable on final products produced by the machines. We emphatically agree with our learned Brothers of the West Regional Bench that the answer is an obvious no. It is obvious because when the component parts of a machine are brought to the factory where it is assembled and erected it is the machine that emerges and that is an excisable product. It has to pay duty if the same has not been paid earlier. Its being used subsequently in the factory where it is assembled does not grant it any immunity from duty as Notification 217/86 dated 2-4-1986 as amended is structured in the pattern of Rule 57A and machines, machinery etc. do not get the nod. When the parts are assembled to form the machinery it reaches journey's end. The component part loses its separate identity and it is only the machine that comes into reckoning thereafter and for Modvat, that gets knocked out by the Explanation under Notification 217/86 which follows the same pattern as its counterpart under Rule 57A. The items under contention in the present context are not component parts but spare parts and accessories which require to be replaced every now and then. The component parts go to complete the machine and enter into its structure. The spare parts and accessories in question serve to make the machine operational. But that is not the same as completing the structure of the machine. The component parts have a limited role to play, namely, to contribute to the composition and structure of the machine. Thereafter they lose their separate identity or role. It is the machine then that takes the centre stage and plays its part in the manufacturing operations. That is not the case with the goods in the present encounter. The items, felt, Wire Cloth and Bronze Metal Cloth are not component parts of the paper making machine. The machine is not supplied, fitted with the same and these items are separately acquired and fitted for use and are replaced as and when they become worn out after use. These items do not lose their identity after fitment in the machine. They retain it and play a specific role of their own. It cannot be said that their functions in paper-making is limited to being merely fitted to the machine and that thereafter they lose their distinct identity and utility. We would, therefore, hold that they are themselves used in the actual manufacture of paper and not merely serving as an attachment to the machine. Hence, the issue involved is not merely the difference between durable component parts and others requiring frequent replacement as perceived by the West Regional Bench in Para 7(5) of their order. The issue on the other hand is whether the part in question is an integral component going into the structure of the machine losing its separate status and identity after its integration with the rest of the component parts or it is an accessory and spare part retaining its identity and performing its distinct role. That role, for the felt, is incidentally not for processing or producing goods as mentioned in the Explanation under Rule 57A but to move the moist web to the dryer chamber.

15. The meaning of machinery which extends to parts of machines as seen from the Reader's Digest Dictionary and Webster's Dictionary had been advisedly rejected by us, applying the principle of noscitur a sociis, going by the company in which the expression machinery is found in the Explanation. Dictionary meanings have a limited use, as held by the Honourable Supreme Court in MANU/SC/0232/1991 : 1991 (51) E.L.T. 161 (SC). That apart, the overwhelming trend of definitions for this term in several dictionaries is, however, an integrated combination of several machines and not a single or individual item which is a replaceable spare part and accessory of the machine. The narrower meaning of parts of machines does not accord with the Court rulings already discussed. Thus, where two different meanings are there in the dictionaries, the appropriate meaning out of the two has to be arrived at by interpretation, reading the description as a whole. In the company of the different items in the Explanation under Rule 57A, the meaning for machines will have to be consistent with those expressions and that will point to a complete machine and not a part thereof. The latter view will be an exercise in synecdoche in reverse gear which is out of place in the present context.

16. Rule 57A does not always frown upon the grant of Modvat benefit to items used repeatedly. Mitigation of the cascading effect of duty paid on items used in or in relation to the manufacture of final products while discharging the duty burden thereon is not confined to only raw materials or components thereof which find only a one-time use. Such benefits are, in fact, extended to goods finding repeated use also, as in the case of catalysts and electrodes some of which are of quite a durable nature and are put to repeated use over a long period. Our articles bid fair for grant of similar treatment. Their role is as much in the manufacturing process as that of Titanium Anodes used in the manufacture of caustic soda which has been held to be a modvat-friendly function. In fact, the earlier decision of the Tribunal in regard to eligibility of Titanium Anode for the benefit of Notification 201/79 in Collector of Central Excise v. Gwalior Rayon Silk Mfg. (Wvg.) Co. Ltd. reported in MANU/CE/0070/1988 : 1988 (35) E.L.T. 227 holds the field as the appeal by Revenue to the Honourable Supreme Court has been dismissed as briefly reported in 1991 (52) E.L.T. A101. The said notification, prior to its amendment in March 1982, provided exemption from duty to the extent of duty paid on goods used only in the manufacture of the final product. It was not denied on the ground that their use was only as a part of the electrolysis plant. Modvat Credit, on the other hand, is admissible for goods used not only in the manufacture of final products but also for those used in relation to their manufacture. This should conclusively settle the matter in favour of the appellants in the present case. The findings in our earlier decisions in Straw Products and Emami Paper Mills cases based on other decisions are accordingly not all that crucial, though we feel our conclusions based on such decisions also are relevant and correct. Such decisions being distinguished now from the present issue as in para 7(b) of the West Regional Bench order, does not, we respectfully feel, detract from the conclusion drawn by us. Thus we feel that the role of items like felt or wire mesh in the paper-making machine is comparable to that of Typewriter ribbons in a typewriter. These items make the respective machines functional.

17. The decision of the Honourable Calcutta High Court in Singh Alloys and Steels Ltd. -MANU/WB/0305/1993 : 1993 (66) E.L.T. 594 has been discussed by the West Regional Bench in their order. During the arguments before us, the learned Senior Departmental Representative stated that the department has filed an Appeal before the Divisional Bench of the Calcutta High Court against that judgment. No stay has, however, been obtained from the Honourable Court, against the operation of the judgment. Moreover, we feel the issue before us will not be affected by any decision in the department's appeal. The inputs with which we are concerned are different from the inputs therein which are chemicals which the department had contended were only treatable as inputs for the furnace and its maintenance and repair and were not inputs in or in relation to the manufacture of the final product, steel. This was rejected by the Honourable Court. We feel that the case for grant of Modvat benefit for the inputs like felt, wire cloth etc. is even stronger as they cannot be dismissed as mere parts as they do not lose their status and identity once they are fitted in the machine, having no further role thereafter. The role of these inputs is also not limited or restricted as the use of paints in painting the machines and the use of cement, bricks, mortar, timber and steel structures in erection of the plant which has been discussed in Para 8(1) of the West Regional Bench order. These inputs end up in the machines and plant, becoming part and parcel thereof. They have no separate role for themselves, being unidentifiable as such commodities after their use for the painting or erection job. The use of articles like felt, machine cloth etc. stands on an entirely different footing, as already discussed.

18. The judgment of the Honourable Supreme Court in Star Paper Mills -MANU/SC/0342/1989 : 1989 (43) E.L.T. 178 has been taken up for examination by the West Regional Bench in Para 8(3). In Para 9 of their order they have drawn the conclusion that their approach would appear to be in line with that of the Apex Court. In that case, the question was whether paper core would be eligible for the benefit under Notification 201/79 for use in the manufacture of the excisable product, paper. It was held by the Honourable Supreme Court that such cores can be allowed benefit in terms of Notification 201/79 only when paper is cleared from the factory and marketed in the form of rolls and it cannot be treated as component for paper cleared in sheets/reams. It was held that paper core would be constituent part of paper cleared in rolls and would fall within the term component part used in the Notification insofar as manufacture of paper in rolls is concerned. Paper core was, however, held to be not used in the manufacture of paper in sheets as component parts. On the basis of this finding of the Honourable Supreme Court, it has been observed by the West Regional Bench in para 8(4) of their order that the Apex Court treated such paper core as an item akin to iron rollers attached to machine for rewinding paper where paper is cleared in the form of sheets and that being part of machine, such cores were construed to be ineligible for the benefit under Notification 201/79. On the said reasoning they have expressed their inability to accept the arguments advanced in and approved by us in the Straw Products case.

19. We have taken note of the above-mentioned views of the West Regional Bench. We are unable to accept their findings. There is substantial difference between Notification 201/79 with which the Honourable Supreme Court was concerned in the Star Paper Mills case and Rule 57A relating to Modvat which is the present issue. The benefit under the former provision was available only in respect of goods used as raw materials or component parts in the manufacture of excisable goods. When the paper cores are present in the paper cleared as rolls as they are wound on the same, they are component parts thereof and they fully satisfied the requirement of the Notification and hence held to be eligible for the benefit thereunder. On the other hand, when paper is cleared in the form of sheets, the rolls are not there as component parts in such paper when they are cleared. Hence, they are clearly not eligible for the benefit when paper is cleared without them in the form of sheets. It was on this ground that Notification 201/79 benefit was held to be not admissible for Paper Cores when paper was cleared as sheets. It was not on the ground that the paper cores are machines or, for that matter, parts of machines. On the contrary, the provisions of Rule 57A are quite different. There is no requirement that the inputs should be used as raw materials or component parts in the manufactured products. Again, the use is not only in the manufacture but in relation to the manufacture of the final product also. The enlarged criterion of use in relation to the manufacture in addition to use in the manufacture as obtaining in Rule 57A was not there under Notification 201/79. Such goods used in or in relation to the manufacture of final products will, however, fail to make the Modvat grade only if they are the specifically excluded items, namely, machines, machinery, plant, equipment, apparatus, tools or appliances. This criterion not being there in the provision considered by the Supreme Court, the judgment cannot be taken to be an authority for the proposition that paper cores are machines or, for that matter, part of machines and on that account credit was deniable. As discussed already, the inputs in question are not themselves any of these items. Hence, this finding of ours is in no way inconsistent with the Supreme Court finding in Star Paper Mills case.

20. As regards Dandy Covers which item figures in proceedings before us for the first time, the South Regional Bench has held in Andhra Pradesh Paper Mills v. Collector of Central Excise, reported in MANU/CC/0008/1990 : 1990 (50) E.L.T. 252 that Modvat benefit is not admissible. We feel that the decision on Felts, Wire Cloth etc. would equally apply to Dandy Covers also.

21. Three issues have been framed by the West Regional Bench for being referred to the larger Bench in view of their disagreement with our decisions in Straw Products Ltd. and Emami Paper Mills cases. As to whether the Rules of Interpretation in Section Notes and Chapter Notes meant for classification of excisable goods for levy of duty could be a safe and reliable basis for interpreting the terms specified in Rule 57A for excluding them from the scope of the term "input" is the first issue. We have to take note of Section 20 of the General Clauses Act. In terms of the said provision, where Rules/Notifications use particular expressions of the Act, the same meaning is to be applied in the former also. The expressions in Rule 57A are not defined there. The meaning attributed to them in the Tariff in terms of the Chapter Notes and Section Notes cannot be dismissed as irrelevant by putting them in the strait jacket of the Tariff. As stated earlier, the Honourable Calcutta High Court in Naffar Chandra Jute Mills Ltd. v. Assistant Collector of Central Excise reported in MANU/WB/0198/1993 : 1993 (66) E.L.T. 574 had held in Para 49 at page 590 of the report that the submission of the respondents that these (Interpretative) Rules are limited to the Interpretation of the Schedule and cannot serve as guidelines to a Notification is unacceptable. This finding of the Honourable Court will have precedence over certain Tribunal decisions that the Chapter Notes/Section Notes are meant only for the interpretation of the Tariff entries and not for interpretation of exemption Notifications. Some such Tribunal decisions are -

(1) Johnson & Johnson Ltd. v. Collector of Customs, Bombay : MANU/CE/0115/1987 : 1987 (29) E.L.T. 428

(2) Guest Keen Williams Ltd. v. Collector of Customs, Calcutta : MANU/CE/0078/1987 : 1987 (29) E.L.T. 68

(3) Collector of Customs v. OEN India Ltd. -MANU/CE/0611/1987 : 1989 (42) E.L.T. 235

22. The second issue for decision by the larger Bench framed by the West Regional Bench is whether in the absence of specific exclusion of parts of machines, such parts brought in for attachment to machines could be construed to have been included as inputs for purposes of Rule 57A. Our finding is that given the present format, parts of machines and machinery cannot be inducted into the exclusion part in the Explanation to Rule 57A. We find that in a recent unreported decision, a single Member Bench of the North Regional Bench had dealt with this precise question. That was in Order No. A/469/93-NRB dated 11-6-1993 in Zenith Papers v. Collector of Central Excise, Chandigarh. The relevant finding is extracted below :-

3. Considered. It is well settled that provisions of the Taxing Statute have to be considered strictly and there is no scope for any intendment. Further, the words have to be given their literal meaning if there is no ambiguity. Rule 57A allows Modvat Credit on 'inputs' used in or in relation to the manufacture of specified final products provided the 'inputs' also have been notified under the said rule. Under the said rule 'machines, machinery, plants, equipments, 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 product" have been excluded. Vide the Tribunal's decision reported at MANU/CK/0055/1991 : 1992 (61) E.L.T. 489 (supra) machine cloth used for drying the wet pulp and carrying moist web to dry it and convert into paper is not to be treated as machines, machinery, equipments etc. The inputs in the present case are similar to the above cloth. Such cloth or felts are at the best part of machines and machinery and not complete machinery or tool or equipments by themselves. The legislature is supposed to have said what it meant and to have meant what it has said. If the intention was to deny the Modvat credit on parts of machinery there was nothing to prevent the legislature to say so in clear and unambiguous terms.

4. In view of the foregoing the appeal is allowed.

23. We entirely agree with this view. We also find that the Tribunal, in Collector of Customs v. OEN India Ltd. MANU/CE/0611/1987 : 1989 (42) E.L.T. 235 which is the case at Sl. No. 3 in Para 21 supra had, while not accepting the learned SDR's argument in favour of application of Rule 2(a) of the Interpretative Rules and for the application of Section Note 2(a) of Chapter XVI (sic) as they observed that they were interpreting a Notification and not the Tariff, nevertheless significantly agreed on facts with the submissions of the respondents that the imported goods are not resistors but parts of resistors which ultimately go into a potentiometer. They held that it is only resistors that are excluded from the concessional rates under Notification 172/77. This decision also highlights the distinct treatment to be accorded to parts vis-a-vis the complete machine. Further, we had already observed in Para 7 supra, the Central Excise Tariff also specifically provides for the classification of various parts and accessories under appropriate sub-headings and such parts/accessories fall thereunder and not under the sub-headings of the Machines themselves, of which they are parts, unless otherwise specifically provided for, as for example, in sub-note (b) of Note 2 under Chapter 90. Hence, in Rule 57A, when only machines, machinery etc. are excluded from the definition of inputs and not parts, it would not be permissible to import the latter into such exclusion. An additional definition in some dictionaries for the expression machinery as including operating parts of a machine cannot gain precedence over the contextual interpretation of the said entry which is in keeping with the decisions of High Courts as already discussed in the foregoing paragraphs.

24. The third and final issue for the larger Bench is whether the ratio of the decision of this Bench in the case of Straw Products could be accepted. This is the crucial one for decision by the larger Bench.

25. The West Regional Bench has, in the concluding paragraph of their order referred to the Order No. 447/93-WRB passed by them in Divecha Glass Industries where identical issues had already been referred to the larger Bench and suggested that that case also may be listed accordingly. We have not analysed the said case in this essay as the issues involved have been more comprehensively dealt with in and with reference to B.K. Paper Mills appeals.

26. We are referring these two Appeals to the Honourable President of the Tribunal for having these also heard by the larger Bench to be constituted at the instance of the West Regional Bench.