V.P. Gulati, Member (T)

1. This appeal is against the order of the Collector of Central Excise (Appeals), Madras. The Collector of Central Excise, Coimbatore is aggrieved of the decision of the learned Collector (Appeals) in allowing the benefit of MODVAT Credit in respect of anti-rust oil and electroplating salts. The learned Collector (Appeals) has held as under :

"On going through the above submission, I find that the usage of chemicals is more or less akin to the usage of Rust Preventive oil, which the lower authority has considered as an input, equating it to paint. While the anti-rust preventive oil is used to keep the fully manufactured bearings free from rust, the chemicals are used during the course of manufacture of Bearing themselves. The chemicals are claimed to constitute a plated overlay on bearings, which is nothing but equivalent to quoting with paint. Their usage over a period of time is of no consequence. Therefore, chemicals can hardly be termed as "Capital Goods" and equated to surface grinders. Moreover, the term "capital goods" would apply on lay to "goods" capable of producing goods. The impugned order being one based on a ground which cannot be sustained, I set aside the same and direct the lower authority to extend MODVAT Credit on chemicals also, which are used either in or in relation to the manufacture of final products."

2. The learned Collector in his grounds of appeal has urged as under :

"The functions of the chemicals cannot be equated with those of Paints or the RPO. The paints and the RPO are applied on the finished products and remain with them to keep the products free from rust; whereas, the chemicals in the instant case are used only in an apparatus which produces plated overlays. It is only these plated overlays, which get overlaid on the Bearings, form part of the Bearings. Hence only the plated overlays can be equated with Paints or RPO and not the chemicals.

The learned Collector (Appeals) has argued that the chemicals can hardly be termed as capital goods, and that the term capital goods applies only to goods capable of producing goods. Capital goods do not mean only goods that are capable of producing other goods; it rather means goods that are used in producing other goods. It is therefore clear from the foregoing that the chemicals in question, could very well be termed as capital goods. The chemicals in question are consumable but do not either form part of or go into the Bearings. Their nature of function is that of apparatus, machinery or tool, as the case may be. As such they do not qualify for MODVAT credit in terms of Rule 57A."

3. The learned SDR reiterated the grounds of appeal.

4. The Respondents have cited the following case laws in support of the order of the lower appellate authority:

(1) MANU/CC/0036/1990 : 1990 (48) ELT 283 (Tribunal) in the case of Cominco Binani Zinc Ltd. v. Collector of Central Excise.

(2) MANU/CC/0073/1990 : 1990 (50) ELT 248.

5. We observe that the items in question are anti-rust oil and chemicals used for electroplating purposes. So far as anti-rust oil is concerned, the original authority has held that the same is eligible for MODVAT Credit. So far as the chemicals are concerned, these are admittedly used in the electroplating process and get consumed in the electrolyzing hath and these as has been explained by the learned Collector in his grounds of appeal, are admittedly used in the electroplating. Some of these are solvents and some are catalysts and they have to be replenished periodically as the strength of the Electrolyte comes down. These chemicals are used for de-greasing etc. Hydrochloric Acid is used for Anodic Bathing.

6. The learned Collector (Appeals) has held that since the chemicals are used in the electroplating purposes the same could not be treated as part of apparatus and likewise the other chemicals used in relation to the Electrolyte bath.

7. We observe that Rule 57A excludes machines, plant, equipment, apparatus, tools or applia