ORDER

K. Sankararaman, Member (T)

1. This appeal by Collector of Central Excise, Patna is directed against Order-in-Appeal No. 306/Pat/88 dated 31-10-1988 passed by the Collector of Central Excise (Appeals), Calcutta allowing the appeal filed before him by M/s. Ashim Paper Products (P) Ltd., Jamshedpur, (who are the respondents in the present proceedings) holding that wire mesh (wrongly referred to as wire mass in all the proceedings below as well as in the appeal itself) and industrial cloth cannot be called either tools or appliances as held by the Assistant Collector in his order which was challenged in appeal before him and as such the benefit of Modvat credit would be admissible for such wire mesh and industrial cloth used in or in relation to the manufacture of paper. The Assistant Collector, in his impugned order, had held that endless PB wire mesh (wire mass in the order) cannot be treated as inputs because it falls under the category of tools and appliances. He has observed that it is thrown away after 10 or 12 days, that it is used again and again and that it does not also form part of the finished goods. As regards industrial cloth it has been observed by the Asstt. Collector that this item also does not form part of the final product and is thrown away after 15 or 20 days use. He, therefore, took this item also to be a tool and appliance in the process of manufacture of printing paper. He, therefore, concluded that since the two items in question are not treated as inputs as per the explanation to Rule 57A, Modvat credit is not allowable on them. When the matter was agitated before him, the Collector (Appeals) held that it is not relevant whether the inputs form part of the finished product but the relevance is to the extent of its use "in or in relation to the manufacture of the final product". He observed that from the nature of the use of the items in question in the manufacture of printing paper, the fact that they are used in or in relation to the manufacture was clearly established. He also held that these items cannot be called either tools or appliances and accordingly he set aside the Assistant Collector's order and allowed the appeal. In the present appeal before us it has been contended that the Collector (Appeals) fell in error in holding the two items as inputs without going in detail into their specific function. The use of the items wire mesh and industrial cloth in the manufacture of paper has been described in the appeal as below :-

"Paper Machines - The pulp is first diluted with a large volume of water and given a further sieving or straining treatment to remove the last traces of dirt. Thereafter the milk-like fibre held in suspension is fed in a broad uniform stream on to an endless wire cloth which travels forward on horizontally at a regular speed determined by the quality of the paper being produced. The amount of water added to the pulp as it flows on to the wire depends upon the thickness of the paper to be made and the speed at which the machine is to run. In its forward travel the wire cloth is given a slight side shake in order to reduce the tendency of the fibres to settle parallel to the direction of travel. As the pulp is carried forward on the wire it loses most of its water and in order to assist this action the wire, towards the end of its travel, is made to pass over two or three 'suction' boxes which extract most of the remaining water. At this stage also a light wire roller termed the 'Dandy' impresses the 'water-mark' on the soft pulp."

The moist pulp then passes under heavy felt covered roller known as the 'couch-roll' which squeezes out the remaining water sufficiently to enable the pulp to 'carry' as a damp sheet. It is then conducted on a blanket, to the press rolls and then over large steam-heated cylinders. The blankets guide the paper over these cylinders in such a way that the paper is dried evenly over whole of its surface and so kept flat and free from 'cockling' in spite of a considerable shrinkage which occurs during the drying operation. Finally the paper, now almost completely dried, is calendered or 'burnished' by pressing between a series of polished steel rollers, steam-heated internally. The paper is then run on to a reel ready to be cut up to various sizes."

2. It is contended that from the above description of their functions, PB wire mesh and industrial cloth (commonly known as felt) are appliances attached to the paper machine and that they cannot be treated as inputs. The finding of the Collector (Appeals) has been assailed urging the point that he had overlooked the fact that even machinery items, tools, equipment or appliances get worn out in course of use and are ultimately scrapped but, for that reason, they cannot be treated as consumables and considered to be inputs in or in relation to the manufacture of finished products. It has, therefore, been pleaded that the order of the Collector (Appeals) may be set aside and the Order-in-Original passed by the Assistant Collector restored.

3. When the appeal was posted for hearing, Shri M.N. Biswas, learned S.D.R. appearing on behalf of the appellant Collector submitted that it has to be conceded that the items in question are, no doubt, used in relation to the manufacture of paper but he added, so are machinery and equipment. The wire mesh and industrial cloth are used as attachment or part of the machine. They perform a specific function of drawing out the water for demoisturising the pulp. He contented that the item will be covered by the expression appliance because of its specific function. Even otherwise, it will be covered by the other expression - "equipment". Their being subject to quick wear and tear is comparable to the wear and tear of tools and grinding wheels. Wear and tear and being consumable items alone cannot make them an eligible input for purposes of Modvat. He, therefore, concluded that the order of Collector (Appeals) cannot be sustained.

4. Shri P.K. Das, learned Counsel for the respondents reacted strongly to the contentions raised by the learned SDR. He contended that the facts urged in the appeal are different from those taken in the Show Cause Notice or adjudication order. The Assistant Collector had stated that the goods in question are not present in the products and that they are used again and again. Shri Das relied upon the following case laws :-

(i) Collector of Central Excise v. Titagarh Paper Mills (1983 ECR 1152 Cegat)

(ii) Collector of Central Excise v. Sirsilk Ltd. MANU/CE/0270/1985 : 1986 (25) ELT 297 (Tri.)

(iii) Aluminium Corporation of India v. Union of India (1978 ELT J 452 SC)

(iv) Union of India v. TISCO (1977 ELT J 61)

He strongly opposed the appeal and pleaded that the same may be dismissed and the order of the Collector (Appeals) sustained.

5. I have considered the submissions made in the matter. The two decisions of the Supreme Court at SI. Nos. (iii) and (iv) cited by the learned Counsel for the respondents do not have any bearing on the present issue. Thus, the decision in the case of Aluminium Corporation of India (1978 ELT J 452 SC) lays down that if a notification does not exclude from exemption altogether manufactures made partly from duty paid and partly out of non-duty paid inputs, the exemption cannot be denied on the reasoning that the sheets, circles etc. had not been manufactured wholly and solely out of duty paid slabs. Likewise, in the other matter concerning Tisco (1977 ELT J 61 SC) it was held by the Supreme Court that when duty paid pig iron is mixed with non-duty paid pig iron the set-off cannot be refused on the ground that the non-duty paid material has also been utilised. I find these judgments do not have any bearing on the present issue where the question for decision is whether the goods - Wire Mesh and Industrial Cloth are in the nature of the excluded varieties of goods like machinery, machine appliances, equipment for deciding the question whether they are eligible for Modvat benefit under Rule 57A of the Central Excise Rules, 1944.

6. The decisions of the Tribunal at SI. Nos. (i) and (ii) were rendered in the context of Notification No. 201/79 for deciding the scope of the term used in the manufacture of figuring therein, with reference to use of goods like lime, alum, salt cake and sulphamic acid in the manufacture of paper. The Tribunal held that there is no authority for the view that an input or raw material must go directly into the finished product and as long as it is consumed and utilised in a way that results or helps in the production or manufacture of the article in which the system is engaged, it is a raw material and an input for that finished product. The stand of the department that the inputs, to be eligible for the benefit of the exemption, must be contained in the body of the paper or paper board was negatived. The Counsel for the respondent strongly relied upon the decision in the Titagarh matter while arguing the case at the stage of stay, when he had submitted that their case is even stronger as the provisions regarding Modvat refer not only to use in the manufacture of the finished product but also use in relation to its manufacture whereas in Notification 201/79, which was the issue before the Tribunal in the Titagarh and Sirsilk cases cited, the crucial expression used is "used in the manufacture..." only.

7. The Assistant Collector was clearly in error in looking for and applying the criterion of presence of the goods in question in the finished product, paper. But the contention raised by the Counsel that the enlargement of the other criterion of use in the manufacture of the finished product to cover goods also used in relation to the manufacture of the finished product does not give any added weight to their case. Even without the expanded scope of the coverage, the goods came within the scope of the expression "used in the manufacture..". The Supreme Court had dealt with this question in their judgment in J.K. Cotton Spinning and Weaving Mills Company Ltd. v. Sales Tax Officer [MANU/SC/0269/1964 : 1965 (16) STC 563 SC]. It had been held therein that manufacture of goods should normally encompass the entire process carried on of connecting raw materials into finished goods. In Collector of Central Excise v. Ballarpur Industries Ltd., [MANU/SC/0115/1989 : 1989 (43) ELT 804 SC] the Supreme Court had held that the relevant test is not the presence of the goods in question in the end-product but the dependence for its essential presence. Without it the end-product is rendered impossible. This quality should coalesce with the requirement that its utilisation is in the manufacturing process as distinct from the manufacturing apparatus.

8. The above observation of the Supreme Court in making a distinction between a manufacturing process and manufacturing apparatus has a special relevance in the present context. The term "inputs" has been defined in the Explanation clause of Rule 57A as not including machinery, machines, equipment, appliance etc. In the erstwhile exemption Notification 201/79 which was the subject matter of the Supreme Court judgments, the relevant expression was "used as raw materials of component parts in the manufacture of the finished products". The criteria adopted by the Supreme Court in striking a distinction between use in the manufacturing process and in the manufacturing apparatus thus assumes added significance and the contentions raised in the appeal acquire added weight and validity. The goods in question are in the nature of appliances which perform specific function of removing the moisture from the pulp as pointed out by the learned SDR. Such goods in the nature of appliances which are part of machines which produce the paper are not covered by the term "inputs".

9. The objection taken by the learned Counsel for the respondents that the facts urged in the appeal are different from those taken in the Show Cause Notice and adjudication order has no merit. The Assistant Collector had held that the materials in question fall in the category of tools and appliances and accordingly do not qualify for Modvat benefit. As this view was set aside in the Order-in-Appeal by the Collector (Appeals), the appeal against that order has been filed incorporating the reasons why the Order-in-Appeal is not acceptable and why it requires to be set aside. For the reasons discussed, this does not amount to adducing reasons different from what were alleged in the Show Cause Notice and accepted in the adjudication order. I, therefore, allow the appeal and set aside the Order-in-Appeal passed by the Collector (Appeals) and restore the Assistant Collector's order subject to the restriction that while working out the demand for the amount of credit availed of wrongly the demand can be confirmed for a period of only six months prior to the serving of the notice for duty short levied. This time limit of six months will be applicable even prior to the amendment of Rule 57-1 with effect from 6-10-1988 since the elements of suppression, wilful statement or fraud were not involved nor were they alleged. When credit not due is availed of and is later on disallowed, the duty which becomes due has to be made good for which Section 11A comes into play. The Assistant Collector should work out the amount of demand arising from wrong availment of credit to a period of six months from the serving of the demand, as per the provisions of Section 11A of the Central Excises Salt Act, 1944.