V.P. Gulati, Member (T)

1. This appeal is filed by the Revenue against the order of the Collector of Central Excise (Appeals), Madras. The Collector (Appeals) has allowed the benefit of MODVAT Credit to the Respondent's paper making Unit in respect of the following items holding that the same are used in or in relation to the manufacture of paper:

(a) Hydrochloric Acid

(b) Sulphuric Acid

(c) Hydrazene 100%

(d) Sodium Sulphate.

2. The learned Collector (Appeals) has held as under in his order:

"I find from the above that it is not clear as to how it can be said that Hydrochloric acid is used for maintenance of machinery. If Hydrochloric acid is used for demineralisation of water which is to be turned into steam in part and to be utilised for spraying on the pulp, in the case, it cannot be called that demineralised water obtaining which hydrochloric acid is used, that such acid is used as a part of plant and machinery or for their maintenance. Therefore, there being no doubt of the use of Hydrochloric acid, in and in relation to manufacture of the final products, MODVAT Credit in respect of hydrochloric acid is allowed. So far as Sulphuric acid is concerned, the same is also used for the same purpose as that of the Hydrochloric acid in water treatment. Therefore, the Assistant Collector has rejected the inputs credit for sulphuric acid also. For the reasons stated by me above, sulphuric acid is also covered by the word inputs and the appellants are eligible for MODVAT Credit for the same.

For items Hydrozinc, sodium sulphate, sodium hexameta phosphate and trisodium phosphate, the Assistant Collector has held that the assessee has pointed out that these chemicals are used in water treatment plant for purification of water out of which Hydrazene 100% and sodium sulphate are used as oxygen scavenger (deoxidant) to carry the oxygen in the water treatment plant. Sodium Hexa-meta Phosphate and Tri-sodium Phosphate are used for the prevention of scale formation in boilers which is nothing but a function to keep the boiler in the proper working condition and it is clear that it is used for the maintenance of the boiler. So it is seen from these that all these items are not eligible for availing the MODVAT Credit.

After carefully considering the above findings of the Assistant Collector, I find that the chemicals are required for water treatment plant for purification of water. This fact is admitted by the Assistant Collector. Hydrazene 100% and sodium sulphate are used as deoxidant to carry oxygen in the water treatment plant. Therefore, these two items cannot be part of the machinery and maintenance of the machinery".

3. In the grounds of appeal, the Appellant-Collector has urged as under :

"Collector of Central Excise (Appeals), Madras held that the Hydrochloric Acid used for demineralisation of water cannot be called as a part of plant machinery or for their maintenance. He has however, held that the same Hydrochloric acid is eligible for MODVAT Credit inasmuch as there is no doubt of the use of Hydrochloric acid in or in relation to manufacture of the final products. In respect of sulphuric Acid, he has held that it is also used for the same purpose as Hydrochloric acid in water treatment and hence eligible for MODVAT Credit.

Further the Collector (Appeals) has held that Hydrazene 100% and sodium sulphate cannot be part of machinery or maintenance of machinery as such but are used as de-oxidant to carry oxygen in the water treatment plant and hence they are eligible for MODVAT Credit.

As per Rule 57A of Central Excise Rules, 1944 read with Notification 177/86-C.E., dated 1-3-1986 MODVAT Credit is available only on the duty paid inputs which are used in or in relation to the manufacture of the final products.

In this case, the Collector of Central Excise (Appeals), has allowed the appeal in respect of inputs viz. (1) Hydrochloric Acid (2) Sulphuric Acid and (3) Hydrazene 100% holding that these inputs are eligible for MODVAT Credit. This is