1. Modvat credit of Rs. 2,57,449.79 was denied to the appellant company, M/s. Hindustan Zinc Ltd. The said credit was for the purpose of payment of duty on Liquid Oxygen used in the manufacture of Refined Lead in the blast furnace. The said Credit was denied on two grounds. Firstly, it was denied on the ground that the declaration filed by the appellants vide their letter dated 25-3-1988 was acknowledged by the Department on 5-5-1989 and as such, the Modvat was available from the date of acknowledgment of the declaration. Secondly, the Department had denied the Modvat credit on the ground that the Liquid Oxygen was not an eligible input in terms of Rule 57A of the Central Excise Rules, 1944.
2. Appearing on behalf of the appellant company, Shri K.K. Banerjee, learned Advocate submitted that earlier they had filed a declaration in 1986. However, since that declaration was not in proper form, another declaration was filed on 25-3-1988, which was, however, acknowledged by the Department on 5-5-1989. He submitted that the finding of the adjudicating authority that the letter of 25-3-1988 was not received in the office of the Assistant Commissioner, was factually incorrect inasmuch as the subsequent letter of acknowledgment dated 5-5-1988 was not referring to any other declaration. In the circumstances, he submitted that the said acknowledgment dated 5-5-1989 was referring to a letter dated 25-3-1988.
3. Shri B.B. Sarkar, learned JDR, however, did not dispute the above position and submitted that as per the clarification received by him from the Department, the declaration dated 25-3-1988 was received in the office of the Assistant Commissioner on 28-3-1988. In the circumstances, he submitted that this ground of denial of Modvat credit for non-filing of any declaration was no more available to the Department.
4. As regards the availability of Modvat credit on Liquid Oxygen used in the manufacture of Refined Lead in the blast furnace, Shri Banerjee had drawn my attention to para 2 of the Memo of Appeal. The said para had given in detail the process of manufacture of Refined Lead and the use of the Liquid Oxygen in the same. The said paragraph is reproduced as below :-
"2. That, appellant states that lead ores and concentrates are reprocessed involving extraction of lead from lead ores and concentrates, roasting and sintering for conversion to lead oxide and smelting with coke and finally converted into Refined Lead. In the integrated manufacturing process duty paid liquid-oxygen gas is used. The oxygen in blast furnace is used to make it react with coke for production of Co (Carbon mono oxide) which ultimately reacts with PbO (Lead oxide) to form molten metal Pb-metal: PbO + Co = Pb + Co2. Therefore oxygen is a must for furnace operation for latter and faster reduction of PbO (Lead Oxide) in blast furnace oxygen is thus not used as fuel but energy in enriching/generating high temperature and chemical reaction as well as melting down deposition of micro-constituents in the nature of metalitic impurities clogging the flow of molten-metal. Liquid oxygen is consumable item, an essential ingredient used in manufacturing process, has nexus with the production of final product Refined lead. Liquid oxygen/oxygen gas directly participates in the integrated process of manufacture is an ''Input'' used in or in relation to the manufacture of Refined lead."
5. He, Further, submitted that keeping in view the role played by the Liquid Oxygen, it cannot be said that the same had not been used in or in relation to the manufacture of Refined Lead. He, further, drew attention of the Bench to the findings of the adjudicating authority and submitted that the benefit had been denied only on the ground that the Liquid Oxygen did not go as constituent in the finished goods and did not even enter in the stream of manufacturing process. As such, the same cannot be considered as a raw-material or components and hence was certainly not an input eligible for Modvat credit. Shri Banerjee submitted that the above reasoning of the adjudicating authority was no more valid inasmuch as by a Catena of Judgments, it had become a settled legal position that to be considered as an input, the same need not be present in the final product as such and as long as the same would be used in or in relation to the manufacture of the final product, the same was an eligible input. He, further, submitted that Liquid Oxygen was a specified input under the Notification issued under Rule 57A and was also not excluded by the Exclusion Clause of Rule 57A. In support of his submissions, Shri Banerjee relied upon the Tribunal''s decisions reported in 1990 (49) E.L.T. 531 (Tribunal) and 1990 (47) E.L.T. 376 (Tribunal) respectively. 6. He also submitted that in respect of the same appellant factory at Vishakapatnam, Modvat credit in respect of Liquid Oxygen had been allowed to them by the Assistant Commissioner concerned vide his Order dated 3-9-1986 (copy placed on record). The said Order had not been challenged by the Department and their Unit at Vishakapatnam had been enjoying the benefit of Modvat credit in respect of the Liquid Oxygen right from 1986. In the circumstances, he submitted that the appeal in question be allowed by extending the benefit of Modvat credit to them in respect of Liquid Oxygen.
7. Countering the arguments of the appellants, Shri B.B. Sarkar, learned Junior Departmental Representative for the respondent Commissioner, reiterated the reasonings adopted by the adjudicating authority and submitted that as the Liquid Oxygen was not used directly in the manufacture of the final product in question, the same cannot be considered as an eligible input for purposes of the said Rules.
8. I have considered the submissions made by both sides and the relevant decisions on the points in question.
9. As regards the denial of Modvat credit on the ground of non-filing of declaration, clarification put on record by the learned JDR shows that their declaration was in fact received by the Assistant Commissioner concerned on 28-3-1988. As such, the denial on this ground is not sustainable.
10. As regards the denial of Modvat credit on the ground of Liquid Oxygen not being an eligible input, I find that the Additional Commissioner had denied the benefit only on the ground that the same did not go as a constituent in the finished goods and the same was used to enrich the act in the coal-based furnace which helped to increase the operating temperature inside the furnace, helped faster reaction and which was stated to have been used in lancing purposes to meet down the obstruction/deposition in the furnace and as such it did not have any nexus in the manufacture of the final product, but only an aid to the furnace. Shri Banerjee, learned Counsel had denied that the Liquid Oxygen acted as a fuel in the furnace. As per the manufacturing process (extracted above), the Oxygen in the blast furnace reacts with coke for the production of Carbon Mono Oxide which ultimately reacts with Lead Oxide to form molten metal lead. As per the reaction given therein, the use of Liquid Oxygen, which is consumed in the process, has a nexus with the production of final product, Refined Lead and it cannot, therefore, be said that the same does not directly participate in the integrated process of manufacture. I do not intend to discuss all the Judgments on the point as the issue is no more ''res integra'' and I feel that there is no requirement that the inputs used should be present physically in the final product in order to qualify for the Modvat benefit and it is sufficient as long as the same are ''used in or in relation'' to the manufacture of the final product and are not specifically excluded from the scope of the machinery, appliances etc. inasmuch as the Liquid Oxygen is not covered by the Exclusion Clause of Rule 57A. In the circumstances, I hold Liquid Oxygen used in the manufacture of Refined Lead to be an eligible input for purposes of Modvat credit. Accordingly, the appeal is allowed by setting aside the impugned Order. Needless to say, the penalty of Rs. 5,000.00 is also set aside, in terms of the Order above.
