2005 INSC 0167
                                    SUPREME COURT OF INDIA

                                  Eastern Electro Chemical Industries

                                                      Vs.

                                   Collector of Central Excise, Indore

                                           C.A.No.5068 of 1999

                   (C. K. Thakker, Mrs.Ruma Pal and Dr. A.R. Lakshmanan JJ.)

                                                 15.02.2005

                                                JUDGMENT

C. K. Thakker, J.

1. The appellant manufactures Calcium Carbide. The question is whether the appellant was
entitled to the benefit of Notification No. 217/86-C.E., dated 2-4-86 in respect of MS
Casings.

2. The Notification provided exemption to Modvat Items if used as inputs within the factory
of production in or in relation to the manufacture of final products specified in Column 3 to
the table appended to the Notification from duty payable under the Central Excise Tariff Act,
1985. In terms of the Explanation which defines inputs, the following items were not to be
considered as inputs for the purpose of the Notification:

        "(i) machines, machinery, plant equipment, apparatus, tools or appliances used for
        producing or processing of any goods or for bringing about any change in any
        substance in or in relation to the manufacture of the final products;

        (ii) packaging materials in respect of which any exemption to the extent of the duty of
        excise payable on the value of the packaging materials is being availed of for
        packaging any final products;

        (iii) packaging materials the cost of which is not included or had not been included
        during the preceding financial year in the assessable value of the final products under
        Section 4 of the Central Excises and Salt Act, 1944 (1 of 1944); or

        (iv) cylinders for packing gases."

3. The appellant manufactures MS Casings for use within its factory for the purpose of
production of Calcium Carbide. The concurrent findings of fact by both the Commissioner
(Appeals) by the Collector (Appeals) and the Customs, Excise and Gold (Control) Appellate

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Tribunal (CEGAT) are that in the process of manufacture of the Calcium Carbide initially the
appellant fills the carbon paste in MS Casings through which the current is passed and then
the MS Casings are lowered into the furnace where the carbon paste hardens and burns out in
the furnace. As far as the MS Casings are concerned they melt and get mixed up with other
molten raw materials. The issue is whether the MS Casings are inputs within the meaning of
Notification 217/87-C.E.

4. The Assistant Collector came to the conclusion that the MS Casings fell within the first
clause of the Explanation to the Notification and was an 'equipment' which was used for
bringing about change in the substance in the final product. The benefit of the Notification
was accordingly denied. The Collector (Appeals) reversed this decision and held that the MS
Casings were inputs, firstly because it was consumed in the process of manufacture and was
not available to the appellant for further use and secondly because the final product namely,
the calcium carbide could not be manufactured without the use of MS Casings. The CEGAT
came to the conclusion that the Assistant Collector was correct and that the MS Casings were
in fact container as admitted by the appellant and hence fell within Clause-1 of the
Explanation which provided for the exceptions to the definition of the word 'inputs' for the
purpose of the Notification in question.

5. Having regard to the admitted facts on record, we are of the view, that the CEGAT was
clearly wrong in its approach. The issue has been settled by this Court in Collector of Central
Excise v. Ballarpur Industries Ltd. (S.C.) where the construction of a similar Notification
was in question. This Court held that there were four kinds of inputs which could be said to
be ingredients (i) those which retain their dominant individual identity and character
throughout the process and also in the end-product, (ii) those which, as a result of interaction
with other chemicals or ingredients, might themselves undergo chemical or qualitative
changes and in such altered form find themselves in the end product, (iii) those which like
catalytic agents, while influencing and accelerating the chemical reactions themselves remain
uninfluenced and unaltered and remain independent of and outside the end-products; and (iv)
those which might be burnt up or consumed in the chemical reactions.

6. The process of manufacture in which metal casings are involved clearly fell within the 4th
category. In the circumstances, we are of opinion that the Collector (Appeals) was correct
and the Tribunal was wrong in deciding to the contrary.

7. The appeal is accordingly allowed and the decision of the Tribunal is set aside. There will
be no order as to costs

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