V.P. Gulati, Member (T)

1. This is an appeal against the order of the Collector of Central Excise (Appeals), Ma8ras, dated 29-7-88.

2. The short point that arises for determination is whether the appellants are eligible to take MODVAT credit in respect of anti-rust and anti-corrosion oil which is applied on the finished tools. The learned lower appellate authority in this context has held as under:

"It is not used in manufacture or in relation to manufacture but is applied after the tools are manufactured for preservation. Therefore, it cannot be considered an input used in or in relation to manufacture. The learned consultant's view that manufacture is complete when the oil is applied and not before is not acceptable. The tools are complete tools, with or without such oils."

3. The learned Consultant pleaded that the application of the anti-rust and anti-corrosion oil is as a preventive measure to prevent the rust and corrosion of the tools after they have been manufactured. He has pleaded that this is an essential operation to be carried out in the factory and the goods are sold only after applying this oil. He has stated that the goods are also accounted for in the RG.I register only after application of the oil on the tools. He has pleaded that inasmuch as the oil was used in relation to the manufacture of the tools, the benefit of the MODVAT credit in respect of the oil in question should be given.

4. The learned JDR for the Department opposing the plea adopted the reasoning of the learned lower authority as reproduced above.

5. The short point that arises for our consideration is whether after the tool has come into existence any further operation carried on can be said to be in relation to the manufacture of the tool. It is not in dispute that the goods are put in the market stream only after the application of the oil thereon and the appellants also account for the same in the statutory Central Excise record only after the said oil has been applied on the tools. We are, therefore, to consider whether the application of oil done before putting the goods in the market stream can be treated as a process incidental and ancillary to the manufacture of the product and its use in relation to the manufacture of the product. It is seen the Hon'ble Supreme Court in the case of Star Paper Mills Ltd. v. Collector of Central Excise, Meerut, reported in MANU/SC/0342/1989 : 1989(43)ELT 178 (S.C.) : (1989) 4 Supreme Court Cases 724, while examining the issue with reference to use of paper core for winding of the paper thereon, has held that the paper core can be considered as a component part of the paper for the following reasons:

"If it is found that the use of paper core is necessary in "any process incidental or ancillary to the completion of paper as marketable goods and it would consequently be commercially inexpedient to sell paper without the use of paper core, it would certainly be a constituent part of paper and would thus fall within the purview of the term "component parts" used in the notification. This takes us to the process of manufacture of paper."...

"9. It is thus apparent that paper is made (1) in the form of rolls and (2) in the form of sheets and the paper which is sold in the form of sheets is cut in desired sizes by taking recourse to the process referred to above."

"16. In view of the foregoing discussion, we are of the opinion that use of paper core is necessary for rewinding of paper if it is delivered to the customer in rolls and would come within the purview of the expression "any process incidental or ancillary to the completion of a manufactured product" used in the definition of the term "manufacture" in Section 2(f) of the Act and for the same reason paper core would also be constituent part of paper and would thus fall within the term "component parts" used in the notification insofar as manufacture of paper in rolls is concerned.".

It is observed that the Hon'ble Supreme Court has held that the term 'proc