K. Sankararaman, Member (T)

1. We have before us a two pronged attack on the Order-in-Appeal dated 20-8-1990 passed by the Collector of Central Excise (Appeals), Calcutta holding that the appellants before him M/s. Straw Products Limited were eligible for modvat credit in respect of chemicals and resins used by them for treatment of water in the course of manufacture of paper as also felt used for manufacture of paper but not so eligible in regard to wire netting of stainless steel and of phosphor bronze used for the same purpose. That part of the order favourable to Straw Products has been assailed by the Collector of Central Excise, Bhubaneswar which is now before us as Appeal No. E-396/90. They, on their part, have filed their appeal registered as E-395/90, aggrieved with that part of the order denying them modvat benefit in respect of wire netting of stainless steel and of phosphor bronze.

2. Both the Appeals were heard together by us and are disposed of by this common order.

3. The department's appeal was taken up first when Shri A. Choudhury, learned Departmental Representative argued their case. He referred to the contentions raised in the appeal and emphasised the point that the chemicals and resins in question which had been allowed modvat benefit by the Collector (Appeals) cannot be said to be used in the manufacture of paper. They are used in an earlier process of water treatment for purifying it and removing soluble salts to prevent choking and formation of scales in the boiler and pipes. This is not a process for the manufacture of paper. Even if untreated water is boiled, steam is produced and water treatment for this purpose is not a process in the manufacture of paper. Hence, such chemicals/resins used for treating water and not in the manufacture of paper are not entitled to get modvat credit as inputs under Rule 57A of the Central Excise Rules. As regards the item Felt, it is in the nature of equipment or machinery. This does not go into the manufacture of the final product. Being equipment, it belongs to the category of goods which stand excluded from modvat benefit by virtue of the explanation under Rule 57A. It is not a consumable article in the sense that it does not get used up during the process. It has been ascertained by the departmental authorities through enquiries made with the respondents and scrutiny of their records that a Felt is used for nearly 35 days whereafter it is removed from the machine and sold for a price. It remains in existence thus, even after use. In any case, the nature of its use being as equipment, it is not eligible for the benefit of modvat credit. He, therefore, pleaded that the order of the Collector (Appeals) insofar as these chemicals, resins and felt are concerned may be set aside and the department's appeal allowed.

4. The arguments were forcefully and elaborately opposed by Shri V. Lakshmikumaran, learned Counsel for the respondents, M/s. Straw Products Limited. He started with a fair admission that this Tribunal had decided a similar matter in favour of the department and against the assessee in Collector of Central Excise v. Ashim Paper Products reported in MANU/CK/0008/1990 : 1990 (50) E.L.T. 120 wherein it was held that wire mesh and industrial cloth are in the nature of appliances and hence not inputs entitled to modvat benefit. He, however, submitted that certain essential facts had not been argued before the Tribunal in the said case. He, therefore, pleaded that the same may be considered and the matter decided on merits, independent of the said decision.

5. Shri Lakshmikumaran then gave a brief outline of the modvat scheme. He said that it has been introduced to provide relief to the manufacturers from the cascading effect of duty paid on inputs. Whatever goods are used in or in relation to the manufacture of final products should be eligible for modvat credit subject to the exceptions as stated in the explanation under Rule 57A. Such exceptions are machine, ma