ORDER

P.K. Desai, Member (J)

1. Both the appeals are directed against the Order-in-Appeal No. KW/308/91 BRD dated 31-10-1991 of the Collector of Central Excise (Appeals) Bombay confirming Orders-in-Original Nos. 57/91 and 58/91 dated 21-3-1991 of the Asstt. Collector of Central Excise Div. IV Vadodara disallowing MODVAT credit in respect of Nitrogen Gas used in or in relation to their final product MMA Monomer, and confirming the demand for Rs. 26,585.83 and Rs. 15,895.95 for the period April 1990 to August 1990 and September 1990 to December 1990 respectively.

2. The appellants are the manufacturers, amongst others, of an item known as MMA MONOMER, and have opted for the benefit under the MODVAT Scheme, claiming Nitrogen gas as used in relation to their final product, they took the credit for the duty paid on the said gas. The jurisdictional Range Superintendent, however served two show cause notices dated 20-9-1990 and 30-1-1991, alleging that such a credit was not available to them as the Nitrogen gas did not act as an input in their final product, and called upon the appellants to show cause to the jurisdictional Asstt. Collector, why the amounts (as subsequently confirmed) should not be demanded on account of wrong availment of the credit. The appellants in reply thereof, however pleaded that Nitrogen gas was declared as an input and MMA MONOMER as the final product for availment of Modvat Credit, vide Rule 57A of the Central Excise Rules, and vide their declaration dated 19-3-1986, they had already declared Nitrogen gas as an input in manufacture of their final product MMA Monomer, and had obtained the dated acknowledgement and that thereafter they had been maintaining appropriate accounts therefore and had been submitting monthly RT 12 returns also. As to the use of Nitrogen gas, they pleaded that the gas was used as inert which did not react with the other chemicals and induction of the same during the reaction in the reactor was essential technological necessity to create inert atmosphere. According to them, Hydrocyanic acid (HCN), one of the input for manufacture of MMA Monomer, was being received from IPCL by gravity, in liquid form, in their buffer vessel, and the same having very low boiling point i.e. 26°C temperature, and there being a possibility of continuous evaporation and a possibility of the same getting polymerised and chocking of the pipelines, as also evaporated HCN going to the incinerator, or pressuring in the storage vessel creating hazardous condition, because of the poisonous material of HCN, blanketing by an inert gas was absolutely essential and that Nitrogen gas was being used as such. They pleaded that, though Nitrogen gas

did not go into the product mix nor did it effect any chemical reaction in the product, the same was consumed in relation to the final product as, but for the said inert gas, the desired final product would not be available. Adjudication proceedings were conducted and the Asstt. Collector came to the conclusion that the Nitrogen gas was being used only to create inert atmosphere for safe and continuous operation of the plant, where MMA Monomer was being manufactured but the same did not take part in chemical reaction. According to him the gas at best, could be said to have been used as requirement of the process and not as an input, and could be said to have been used to create inert atmosphere but not in or in relation to manufacture for the purpose of Rule 57A of the Rules. He therefore disallowed the credit and confirmed the demands. In the appeal, the Collector of Central Excise (Appeals) also concurred with the finding of the Adjudicating Authority and confirmed the order.

3. Mr. N.I. Mehta, the learned Advocate for the appellants, has reiterated the contentions raised in the reply to the Show Cause Notice and has pleaded that Rule 57A of the Central Excise Rules, has permitted availment of MODVAT Credit also for the items used "in relation" to the manufacture of the final product and has emphasized that Nitrogen gas was used in relation to the process of manufacture, as creation of inert atmosphere was a technical necessity for manufacture of the final product. He has also pleaded that where the Rule provides for an exclusive clause, the same ought to be strictly construed and the use of Nitrogen gas could not fall within any of the excluded category. In support of his submissions, he has referred to several decisions from various authorities, but has made special reference to the decisions (1) of the East Regional Bench of the CEGAT in Straw Products Ltd. v. CCE - MANU/CK/0009/1991 : 1992 (59) E.L.T. 572 (Tribunal) where chemicals and resins used for water treatment, which in turn is used for manufacture of paper, has been held eligible to Modvat Credit. (2) of the North Regional Bench of CEGAT in Steriware (Private) Ltd. v. Collector, 1992 (19) E.T.R. 774 where Silicone Spray used for cooling the mould surface to prevent moulded parts sticking to the mould surface during injection moulding of thermo-components, though adding to output of the machine and improving the quality of the moulded product, is held eligible to availment of credit for the final product of plastic moulded parts. (3) of the South Regional Bench of CEGAT in Andhra Pradesh Paper Mills Ltd. v. Collector - 1992 (19) E.T.R. 804 where also credit for soda ash and alfloc used for water treatment plant for softening water to be used in manufacture of paper, is also allowed. (4) of the South Regional Bench of CEGAT in Addisons & Co. Ltd. v. Collector - MANU/CC/0035/1990 : 1990 (48) ELT 281 (Tribunal) where anti-rust and anti-corrosion oil applied to finished product before putting in the market stream is held eligible to such a credit. (5) of the East Regional Bench of CEGAT in Collector v. Avery India Ltd. - MANU/CK/0032/1991 : 1991 (56) ELT 790 (Tribunal) where dissolved Acetylene and compressed gas used in manufacture of weighing machine is held to be not tools. (6) of the East Regional Bench in Cans & Closures Ltd. v. Collector -MANU/CK/0069/1990 : 1991 (56) ELT 474 (Tribunal) where cleaning reducer, coating reducer and vinyl reducer, though not physically present in the final product namely pilfer-proof caps and crown corks, is held admissible for Modvat Credit. (7) of the South Regional Bench of CEGAT in W.S. Industries (India) Ltd. v. Collector, MANU/CC/0057/1990 : 1991 (56) ELT 433 (Tribunal) where Pyrometric cones used as essential aid in manufacture of ceramic materials, indicating the degree of firing, is held admissible for Modvat credit. Mr. Mehta, the learned Advocate has finally pleaded that, with the authorities below not disputing the use of Nitrogen gas as pleaded by the appellants, have erred in concluding that the item cannot be held as used "in relation to the manufacture of the final product."

4. Mr. B.P. Singh, the learned J.D.R. has however supported the order of the authorities and has pleaded that the use of Nitrogen gas is neither in the process of manufacturing nor in relation thereof, but is merely to facilitate appropriate flow and maintain proper inert atmosphere in the machinery and go with the machinery and not the product and falls within the excluded category. He has reiterated the reasonings adopted by the authorities below in confirming the demand.

5. Considering the submissions made and perusing the record, there appears no dispute over the point that the appellants have duly opted for the benefit under the Modvat Scheme by filing appropriate declaration declaring Nitrogen gas as input for their final product MMA Monomer. There is also no dispute over the issue that Nitrogen gas is an approved input and MMA Monomer as declared final product vide Rule 57A of the Rules, and are covered under the Modvat Scheme.

6. From the record, and particularly from the the orders passed by both the authorities below, it becomes clear that they do not dispute or disbelieve the appellants claim as regards the mode and manner, as also the purpose for which Nitrogen gas is used by the appellants during the process of manufacture of MMA Monomer.

7. Rule 57A of the Central Excise Rules, permits availment of Modvat Credit for the inputs which are "used in or in relation to the manufacture of the final product. It is therefore clear and is even otherwise duly determined by various decisions from various competent forums, that the item need not go in the product mix, and it could also be available for the purpose of availment of the credit of duty paid thereon, if the same is utilized in relation to the manufacturing process.

8. As already mentioned earlier and on which there is no dispute, Nitrogen gas is used to create an inert atmosphere in relation to manufacture of MMA Monomer and that prevents evaporation of HCL, an essential ingredient in manufacture of MMA Monomer, which has a low boiling point of 26°C temperature. It is not denied that if HCL is evaporated, it could get polymerised and would not remain fit for manufacture of MMA Monomer. Further, by such polymerisation, the entire process of manufacture would get stuck up, with pipes choked up, Nitrogen gas inducted in the reactor and buffer vessel serves as inert agent and prevents polymerisation of HCL and maintaining the original character of the same keeps the same fit enough to be used as an input for the final products. Notwithstanding various decisions referred to and relied upon by the learned advocate for the appellants, as to what type of uses could be construed to be uses "in relation to the manufacture", the process of manufacture and the stage and purpose of use of Nitrogen gas, clearly indicates that the same has to be taken as used "in relation to the manufacture" of MMA Monomer.

9. The adjudicating authority has, in his order-in-original in para 5, observed that "the said use of Nitrogen gas can be considered or used in or in relation to create inert atmosphere." But he failed to realise that creation of such an atmosphere is only for the purpose of manufacture of MMA Monomer, as, without such an inert atmosphere, the final product could not be manufactured. His drawing of the conclusion that even then "it can never be considered as in or in relation to manufacture of appears to have been miscontrived and cannot be sustained. On the contrary the earlier observation regarding creation of inert atmosphere, itself ought to have led him to draw one and only one conclusion of the use of Nitrogen gas as "in relation to the manufacture." The Collector of Central Excise (Appeals) also appears to have erred in linking the use of Nitrogen gas by way of safeguard to the buffer vessel. It appears that the said authority has missed appreciating the undisputed factual position that it is because of the blanketing of Nitrogen gas that polymerisation of HCL is arrested.

10. In the result, therefore, with the use of Nitrogen gas as indicated, the same has to be taken as used in relation to manufacture of MMA Monomer and eligible to availment of credit vide Rule 57A of the Rules. The demand raised and the order confirming the same, therefore, cannot be sustained and has to be set aside.

11. The appeals are therefore allowed and orders of authorities below are set aside and the demand is ordered to be dropped.