K. Sankararaman, Member (T)

1. We have before us a twopronged 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 departments 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 departments 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 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, machinery, plant, equipment, apparatus, appliances, tools etc. which are permanent items or items used on long terms basis. Machinery, machines and plant are big items carrying large amount of duty and duly paid on such items have been specifically excluded from the scope of modvat benefit. Proceeding further, he pointed out the crucial expression for deciding eligibility for modvat benefit is "used in or in relation to the manufacture of final products. The expression "in relation to" has been employed to extend the range of products used as compared to the language of similar previous provisions, e.g. Notification 201/79 where the eligible inputs were those used in the manufacture of final products as raw materials or component parts. The expression "in relation to" has been the subject matter of judicial interpretation by the Supreme Court in Doypack Systems Pvt. Ltd. v. Union of India reported in JT 1988 (1) SC 304 [LQ/SC/1988/116] . It had been observed there that the expression "in relation to" is a very broad expression. These words of comprehensiveness have a direct significance as well as an indirect significance depending on the context. The expression relating to is equivalent to or Synonymous with "concerning with" and "pertaining to". It is an expression of expansion and not of contraction. The learned Counsel urged that the words "in relation to" used in Rule 57A would thus cover a wide range of inputs. The crucial test will be whether the goods in question are used in or in relation to the manufacture of the final products. If they are so used, then it has to be seen whether the goods fall in the category of machines, machinery, plant, apparatus, tools, equipment, appliances. If they do, then modvat will not be applicable to them. Also, if they arc not used in or in relation to the manufacture of the final products, the second test will not arise. It is his case that the goods in question are actually used in or in relation to the manufacture of the final products and that they do not belong to the excluded category.

6. Shri Lakshmikumaran pointed out that paper industry is a highly water intensive one. Pulp is obtained by digesting the wood or bamboo material with alkalis. The pulp is to be then washed to remove the alkali. Otherwise, the shelf life of paper will be reduced. It is, therefore, necessary that the water used should be of proper PH level for which certain chemicals are required. A large quantity of water is used in the actual manufacturing process and the chemicals used for treating the same are definitely used in the manufacture of paper. Regarding the chemicals used for treating water which is boiled to produce steam, he pointed out that steam is used for drying the web of paper. Steam being used in the manufacture of paper, the chemicals used in the earlier and connected process of production of steam would also be goods used in or in relation to the manufacture of paper. The law of transitivity points to such a view.

In this connection, he referred to the observations of the Supreme Court in the case of J.K. Cotton Spinning & Weaving Mills Pvt. Ltd. v. Sales Tax Officer reported in 1965 AIR SC 131D, wherein it was held that if a process of activity is so integrally related to the ultimate manufacture of goods that without that process or activity, manufacture may, even if theoretically possible, be commercially inexpedient, then the goods used in that process or activity are the goods used in the manufacture of the products. In the present case, if the water is not treated, the manufacture of paper would become commercially inexpedient. Treatment of water is, therefore, an essential process in the manufacture of paper. What is more, such treatment of water is a legally mandatory requirement under the Boilers Act. The production of steam is not an unintegrated process, unconnected with the manufacture of paper. It is only in relation to the manufacture of paper. It is commercially inexpedient to produce paper without steam. If steam were chargeable to duty then the duty paid on it would qualify for modvat benefit as it is used in the manufacture of paper. Then the chemicals used for treating water for the manufacture of steam would have qualified for the same benefit while determining the duty on steam. Because steam is exempt, it cannot have the effect of denying the benefit of modvat credit in respect of such chemicals while determining the duty on the final product paper. Notification 217/86 and Rule 57D would support his contention, he added. He then referred to the decision of the Supreme Court in the following cases:-

(1) Collector of Central Excise v. Ballarpur Industries Ltd. - 1989(43) E.L.T. 804

(2) Collector of Central Excise v. East End Paper Industries Ltd. - 1989 (43) E.L.T. 201 (SC)

(3) Member, Board of Revenue, West Bengal v. Phelps & Co. (P) Ltd. - Sales Tax Cases Vol. XXIX 1972, 103

These cases decided by the Supreme Court were concerned with the scope of the expression "used in the manufacture of. The first two related to Central Excise duty in terms of exemption Notification 201/79 while the third was in respect of Bengal Finance (Sales Tax) Act, 1941. In these cases, the Supreme Court followed their earlier decision in J.K. Cotton Spinning & Weaving Mills v. Sales Tax Officer referred to above. In the Phelps case, even the rubber gloves used by workmen engaged in handling corrosive substances in the course of manufacture were held to be goods used in the course of manufacture. In modvat matters the scope is even wider, because of the use of the expression in relation to manufacture of final products but subject to the effect of the exclusion in Rule 57A Explanation. The chemicals and resins used for treating water are used in an integrated process for the manufacture of paper and are essential for the same. Hence they are definitely eligible for the benefit of modvat credit.

7. Shri Lakshmikumaran then took up the question of felts. He submitted that there can be no doubt about their use in the manufacture of paper. They impart surface property to the paper and are used to move the wet web of paper to the dryer house where it is dried by steam. The department wants to treat them as falling in the excluded list of goods, figuring in the Explanation to Rule 57A. The goods are, as such, not covered by any of the entries so mentioned in the said Explanation Clause. That exclusion clause has to be applied strictly and its scope cannot be extended to any other goods. He relied upon the decision of this Bench in Collector of Central Excise v. Hindustan Development Corporation Ltd. reported in 1990 (47) E.L.T. 376, on the scope of exclusion in the said Explanation. What are not included within the scope of the term inputs are machines, machinery, plant, equipment, apparatus, tools or appliances. The goods in question are felt. They are not machines, machinery etc. He referred to the Section No. 1(e) under Section XVI of the Central Excise Tariff which clearly provides that articles of textile material for technical uses (Heading No. 59.09) are not covered by the said section which deals with machinery and mechanical appliances. The goods in question have been classified as Textile articles under Heading 59.09 and in view of the Section Note referred to above, they cannot be considered as machines, machinery etc. The learned Counsel pointed out that Chapter Note 6(b) of Chapter 59 specifically states that felts, endless or fitted with linking devices of a kind used in paper making fall under Heading 59.09. This Chapter unlike other Chapters dealing with Textiles was included in the modvat scheme. If the felts are treated as machine, machinery etc. notwithstanding Chapter Note 1(b) under Chapter 59 and Section Note 1(e) of Section XI and denied modvat benefit, then the purpose of including Chapter 59 including Heading 59.09 in the modvat notification would be defeated and would make it nugatory and redundant. Such an interpretation is not permissible. The item felt is manufactured by manufacturers who do not make paper making machinery. The latter manufacture the machines without the felt which is procured by the paper manufacturers from the felt manufacturers every now and then, according to their requirement. Though felt is used in the paper machine, it is not a builtin component part of that machine, the same way that drill bits are not parts of drilling machine. It is a consumable item requiring to be replaced every now and then when it gets worn out. Whether it is a consumable item or capital item is decided by the criterion how it is treated for Income Tax purposes for claiming depreciation. Depreciation is admissible only for machinery etc. and not for felts, which are treated as a consumable item. The Assistant Collector has denied modvat benefit for felts holding that these are parts of paper making machinery. Shri Lakshmikumaran vehemently contended that the Assistant Collector was not implementing the provision as it existed but had in effect legislated by adding the words parts where the provision was only machines, machinery etc. This is not permissible. Shri Lakshmikumaran then referred to another decision of the South Regional Bench in Andhra Pradesh Paper Mills v. Collector of Central Excise reported in 1990 (50) E.L.T. 252, which, he conceded, went against his contention. They had held that as the cascading effect of duty paid on machinery used in or in relation to the manufacture of the finished products is not to be mitigated, then as a corollary, the parts which are used in these machines would also not be eligible for modvat benefit. The learned Counsel submitted that when the relevant provision covers only machines, parts cannot be treated on a par with them as a corollary. In this connection, he relied upon the observations of the same Bench in Cominco Binani Zinc v. Collector of Central Excise reported in 1990 (48) E.L.T. 283. There, the plea of Revenue that Aluminium sheets are parts of equipment and, since equipments are excluded, parts of the same should also be taken to be excluded did not find favour with them. They observed that no legal basis had been urged for the above plea and there is no warrant to read the parts into the description of excluded category of goods. They had added that the Aluminium sheets are an essential requirement in the electrolysis process and these have to be replaced from time to time after they lose their utility and the waste is sold as scrap. Use of Aluminium sheets was held to be directly in the manufacturing process and since they cannot be treated as equipment by themselves use of the same has to be taken to be in relation to the manufacture of the final product. Learned Counsel pleaded that this reasoning would apply equally for felt used in the manufacture of paper. He submitted that Titanium Metal anodes which are used in the manufacture of caustic soda have been treated as eligible inputs for the purpose of modvat in Gujarat Alkalies & Chemicals Ltd. v. Collector of Central Excise reported in 1989 (41) E.L.T. 424 (Tribunal - WRB). Same decision had been taken by other Benches also.

8. In view of these submissions, learned Counsel strongly pleaded that the decision of the Collector (Appeals) insofar as allowing modvat benefit for chemicals and resins used for water treatment and felt used for the manufacture of paper may be upheld and the departments appeal dismissed.

9. Shri Lakshmikumaran then took up their appeal adding that his arguments in respect of felt would equally apply to wire netting of stainless steel and phosphor bronze used by them in the manufacture of paper. The Collector (Appeals) has allowed the benefit to them for felt but the wires are put to similar use in the process of manufacture of paper but they have been denied the benefit. No reasoning has been given by him for coming to a different conclusion. He has only stated that these cannot be regarded as inputs used in or in relation to the manufacture of paper, adding that wire netting are parts of machinery and do not qualify for being considered as input for availing the facility of modvat credit. As already argued by him, with reference to felts, the wire netting are not parts of the printing machine and cannot be denied the modvat benefit. He referred to the decision of the Supreme Court in Annapoorna Carbon Industry v. State of Andhra Pradesh reported in : AIR 1976 SC 1418 [LQ/SC/1976/84] . There the question was whether carbon arcs are parts of cinema projectors. Again, in the case of typewriter ribbons it was held that they are not parts of typewriter. Going by these decisions there is no case for holding felt and wire netting as parts or component parts of the paper making machine. Even if for the sake of argument they are treated as parts of machines, the exclusion being limited to machines, machinery etc, it cannot be extended, by analogy or as a corollary, to parts thereof. He, therefore, pleaded that their appeal be allowed and the order of the Collector (Appeals), insofar as it relates to these wire netting, set aside.

10. Shri M.N. Biswas, learned Senior Departmental Representative gave a rejoinder to the arguments advanced by Shri Lakshmikumaran in respect of the departments appeal and also reply to the points raised by the latter on their appeal (Straw Products Ltd.s). He contended that the learned Counsels reliance upon the Section Notes and Chapter Notes for interpreting the scope of the term "machines, machinery ... etc." for deciding the question whether the items felt and wire netting are such machinery etc. and accordingly get disqualified for modvat purposes would not be appropriate. The said notes are for the limited purpose of Tariff Classification and assessment of duty. There is no definition of these terms in Rule 57A itself. Hence the definitions given in standard dictionaries as relied upon in certain Judicial pronouncements would be appropriate. Viewed in this light, the term machinery would hold the key to this problem. This expression is more comprehensive and wider in scope than machine. It means not only a set or combination of machines but also component parts of a machine. The working part of a machine is also known as machinery. Such an interpretation would be consistent with the scheme of modvat which seeks to give the benefit of relief in Central Excise duty to the extent of the duty paid on the inputs used in or in relation to the manufacture of the final products. Machines, plant etc are not eligible for modvat by specific exclusion in the Explanation Clause of Rule 57A. Since the items felt and wire netting are not consumable items and do not get used up but are used repeatedly for a number of operations, they are also used like items of machinery and the restricted meaning attributed to machinery as signifying working or moving parts of a machine would be in accord with the purpose of modvat scheme. As the goods satisfy the definition of machinery and are machinery themselves, they stand excluded from modvat benefit. Even otherwise and in the alternative they would be equipment which is also excluded from modvat. Thus all the three items, felt, wire netting of stainless steel and phosphor bronze would not be eligible for modvat benefit and the order of the Collector (Appeals) holding modvat credit to be admissible for felt requires to be set aside. It should, however, be confirmed in so far as the finding on the wire netting is concerned.

11. As far as the chemicals and resins used for water treatment are concerned, they are not used for the manufacture of paper but to safeguard the maintenance of boiler. As boilers are themselves not eligible for modvat benefit being in the excluded category, the chemicals and resins used in relation to the boilers and not in the process of manufacture of paper also cannot get the benefit. He, therefore, pleaded that the departments appeal which covers this issue be allowed.

12. Shri Lakshmikumaran gave a rejoinder to the contentions raised by Shri Biswas about the scope of the term machinery which, it has been argued, would cover parts of machine also, besides referring to complete machines or combination of machines. He justified his reliance on the Chapter Notes and Section Notes in the Central Excise Tariff for treating the item felt as a textile article under Heading 59.09 and for excluding it from the machinery chapter. Thus, "felt" is not machinery. So also, wire netting, by similar provisions. If it is claimed that the term machinery is capable of different meanings and covers not only complete machines or set or combination of machines but also parts of machine, then the latter restricted meaning will not be appropriate in the given context. The expression machinery appears in the exclusion part of the Explanation to Rule 57A and is found in the company of other items machine, plant, equipment, apparatus, tools and appliances, which are complete units themselves and not parts. In that company, the expression machinery takes its colour from these other items and can only represent complete machine or set of machines. This will be in accordance with the principle of noscitur a sociis which was applied by the Supreme Court in Rohit Paper Mills case reported in 1990 (47) E.L.T. 491. He, therefore, reiterated his contention that modvat credit is admissible for all the goods in question and both the appeals may be disposed of accordingly.

13. We have considered the submissions made by both the sides. We have perused the respective appeals and the impugned order as well as the Assistant Collectors order and other record. We have also gone through the decisions referred to during the hearing as well as other decisions which we are referring to at the appropriate places.

14. As pointed out by the learned Counsel, Shri Lakshmikumaran, there is a decision of this Bench in regard to wire mesh, holding them to be appliances and as such not eligible for modvat benefit. But then, as correctly pointed out by him, various relevant points were not argued in the said case. In view of the submissions now made which were not before the Bench, we feel free to look into the matter afresh on merits. Moreover, the said earlier decision was taken by a Single Member which can be departed from by us if we find that the matter, in the light of relevant and additional facts, needs to be reconsidered.

15. A forceful plea was advanced by the learned Counsel, Shri Lakshmikumaran that the terms, machine, machinery etc. not being defined in the relevant Rule viz. 57A of the Central Excise Rules, 1944, the criterion as to what such items are, in terms of the Central Excise Tariff should come into play. Felt falls under sub-heading 5909.00 by specific mention in Chapter Note 6(b) under Chapter 59. We also find that Section Note 1(e) under Section XVI of the Central Excise Tariff which deals with machinery and mechanical appliances specifically keeps articles of Textile material for technical use falling under Heading 59.09 out of the scope of the machinery Chapter. Thus by both specific mention under Heading 59.09 and specific exclusion from machinery chapter, the classification of felt has been determined. We do not agree with the view expressed by Shri Biswas, learned SDR, that the Chapter and Section Notes relate only to Tariff classification and are not applicable to Rule 57A for deciding eligibility for modvat benefit. We find that in Notification No. 177/86 dated 1-3-1986 spelling out the items covered under the Modvat Scheme, the inputs as well as the outputs are expressed in terms of their Tariff Headings and are not referred to by their description. In the circumstances, the Section Notes and Chapter Notes though primarily meant for interpreting the Tariff entries are applicable, pari passu, for deciding admissibility of modvat benefit under Rule 57A.

16. Reliance was placed by Shri Biswas on the definition of the word machinery to advance his proposition that even parts of machines can be treated as covered by the said expression. We find that Websters New Twentieth Century Dictionary, Unabridged Second Edition defines machinery, inter alia, as the component parts of a complete machine. This meaning is in addition to another meaning under which, it refers to any combination of persons or things, the harmonious working of which result in a desired end. This has been referred to by the Honble Gujarat High Court in Ambika Wood Works v. State of Gujarat, reported in Sales Tax Cases 1979 Vol. 43, page 338. Readers Digest Universal Dictionary 1988 Edition defines machinery, inter alia, as the working parts of a particular machine and as machines or machine parts collectively.

17. While examining these definitions and decisions to decide whether in the modvat context, parts of machines can also be considered as machinery, we take note of the strong attack thereon mounted by Shri Lakshmikumaran that when the word machinery means a combination of machines which is the normal meaning attached to it, as also the parts of machines, the ambiguity is to be resolved in this particular context by identifying the company in which the expression has been placed in the Explanation Clause of Rule 57A. We find the other items machines, equipment, appliance, apparatus and tools are complete articles, capable of independent functioning. Such is not the case with felt. It has to be fitted in the paper making machine for use. The Gujarat High Court had held in the Ambica Wood Works case (supra) that some solid structure with no moving parts cannot be termed as a machinery, but it would be machinery if such item, complete in itself, has moving parts in relation with others when they move interdependently by application of force. Thus, in order to be machinery, the following factors must exist:

(i) a complete and integrated collection of several objects or articles;

(ii) these objects or articles should interact in unison upon or with each other.

18. We feel this decision would apply to the present case as to the scope of the term machinery. Shri Lakshmikumaran referred to the decision of the Supreme Court in Annapoorna Carbons case (referred to supra). We find on a perusal of the said decision that this does not advance his case that felt and wire netting for paper making machinery are not parts of such machines. Supreme Court did not hold that Carbons are not parts of a cinema projector. Moreover, the relevant entry with which they were concerned covered parts also. However, this does not affect the present question either way. This has to be decided in the light of other relevant pronouncements. We have already referred to the Gujarat High Court decision in the Ambica Wood Works case. We also have certain other judgments for the proposition that any article used in a machine to make it functional is not necessarily a part of that machine. Thus, typewriter ribbon used in a typewriter was held to be not an essential part of typewriter to attract the tax under Entry 18 of the second schedule to the Mysore Sales Tax Act, 1957. This was the decision in State of Mysore v. Kores (India) Ltd. (1979) 26 STC 87 Mys. Again, in Deputy Commissioner of Commercial Tax, Madurai Division, Madurai v. Ravi Auto Stores (1968) 22 STC 172 (Mad.) [LQ/MadHC/1967/187] and in State of Madras v. Indian Oxygen Ltd. (1968) 22 STC 476 (Mad.) [LQ/MadHC/1967/378] welding electrodes considered by themselves were not held to be electrical goods falling under Entry 41 of Schedule I of the Madras General Sales Tax. It was held in this case that they were only copper rods which get melted by electrical power in the process of welding. Neither the use of the term electrodes to describe them suggesting a connection with electricity nor their utilization in a process involving application of electrical power should convert them into electrical goods as contemplated by the Entry in the Madras Act. Going by the Madras judgment, the present products which are articles of textile material and wire netting of stainless steel and phosphor bronze cannot, by themselves, be treated as machine or machinery, equipment, appliance etc. The Kores decision regarding typewriter ribbon not being part of typewriter in the context of Mysore Sales Tax Act would also support the view that felt and wire netting are not to be treated as parts of paper making machine.

18A. We have already reached a finding that felt and wire nettings, by themselves are not machines, machinery etc. Further, even, if it is held that these items are parts of the machines which point, however, was contested by Shri Lakshmikumaran, their eligibility for modvat benefit does not stand excluded by the terms of the Explanation Clause under Rule 57A. Parts of machines as such do not figure in the said provision and cannot be inducted into it by analogy or corollary. In this we agree with the ratio laid down by the South Regional Bench of the Tribunal in the Cominco Binani case referred to earlier. We have to, with respect, differ from their observations in the Andhra Pradesh Paper Mills case that as a corollary to the provision for not mitigating the cascading effect of duty paid on machines, the parts which are used in these machines to make them functional are also not entitled to modvat benefit. We disagree with this view as it is at variance with their earlier one set out in Cominco Binani case referred to above that the stand of the department that as equipments are excluded, parts of equipment should also be taken to be excluded has no legal basis and that there is no warrant to read the parts info the description of excluded category of goods. We share this latter view. However, in the Andhra Pradesh Paper Mills case, the South Regional Bench had, after making the observations referred to above held that wire netting and felts are essentially parts of the paper making machinery and their main use is to keep the machinery functional and that they must be said to have been used in relation to the machines themselves and not in the manufacture of the goods. This is an important aspect of the matter which puts into the background the other question whether the exclusion of machines would extend to the exclusion of parts thereof for the purpose of granting modvat benefit. If the said goods are used in relation to the machines and not used in the manufacture of the final products, there is no question of modvat being admissible. In a number of decisions of different Benches of the Tribunal including ours, it has been decided that for goods used in relation to the machines or for their repair or maintenance modvat is not admissible. Thus lining of a furnace with refractory material for the purpose of removing defects or gaps in the surface of the furnace has been held to be repair and maintenance and not in relation to the manufacture of the final products. The products like ramming mass used for above mentioned type of use in relation to a furnace have a limited role to play which is in respect of such furnace and not in relation to manufacture. Such is not the case with felt or wire netting which is fitted to the paper making machine where it takes part in the process of manufacture of paper. Such a role is otherwise than as a machine or any other type of excluded goods. It cannot be said that the felt and wire netting are meant only for being fitted in the paper making machine and their role ends there and thereafter they have no further role to play in the manufacture of paper. It was clarified by Shri Lakshmikumaran that these inputs are used for the purpose of draining the water from the wet pulp and for moving the moist or wet web of paper from the machine to the dryer house where it is dried by steam. These also impart certain surface properties to the paper. We also take note of the fact that the different Benches of the Tribunal had been treating goods like electrodes which are used in electrolysis process say, in the manufacture of caustic soda, as eligible inputs for the purpose of grant of modvat. The decision of the West Regional Bench in the case of Gujarat Alkalies & Chemicals v. Collector of Central Excise reported in 1989 (41) E.L.T. 424 and of the South Regional Bench in Cominco Binani Zinc Ltd. v. Collector of Central Excise - 1990 (48) E.L.T. 283 had been cited before us. Going by the same we hold that the items felt and wire netting are inputs used in or in relation to the manufacture of paper and not used in relation to the machines only.

19. We have given the above finding only in the context of the decision of the South Regional Bench of the Tribunal in the Andhra Pradesh Paper Mills case referred to above. This particular line of approach had, however, not been specifically stressed in the argument before us. The emphasis then was only, whether or not, these are parts of the paper making machine/machinery or whether these are themselves machinery. Shri Lakshmikumaran contended that these are not parts and even if they are such parts, they do not get excluded from modvat benefit because only machines, machinery are. Further, in the departments appeal as well as in the Order-in-Appeal and Order-inOriginal of the Assistant Collector, the stand taken is that they are parts of the machine and that they are not used in or in relation to the manufacture of paper. In fact, the finding appears to be that they cannot be said to be used in the manufacture of paper because they are only parts of the machines. This is not the same as stating that their use is only in relation to the machine and not in relation to the manufacture which was the line taken by the Tribunal in the above mentioned case. However, giving the benefit of such an approach on the part of the department we have given our decision from this angle also. What has been agitated before us and what has been decided in the proceedings below are recapitulated below.

20. The ground advanced in the appeal of the Collector in respect of felt is only that it is in the nature of equipment or machinery and that it does not go directly in the manufacture of the final product. The Order-in-Appeal insofar as wire nettings are concerned contained the finding that they cannot be regarded as input, used in or in relation to manufacture of paper and that in fact that they are part of machinery and do not qualify for being considered as input for availing the facility of modvat credit. As far as the Order-in-Original passed by the Assistant Collector is concerned it was held therein that wire nettings are parts and components of the paper machine and that they are not an input of paper. This, coupled with the contention raised in the appeal of the department that felt does not go directly in the manufacture of the final product, points to the proposition that these goods are required to be an input in the paper in the sense that they should be present therein. Such a requirement ignores the context in which the expression input is used in Rule 57A. It has been used only as an abbreviation for the lengthier expression "used in or in relation to the manufacture of. Hence it is only this criterion that should be looked for and not whether it is an input or ingredient of paper. Obviously, paper or board cannot have steel wires imbedded in their structure, unlike, say, steel radial tyres. They can be only used in or in relation to the manufacture of paper without ending up as a constituent thereof. As we have already given our findings, these "inputs" in the restricted sense of Rule 57A satisfy all criteria of the said Rule and the departments appeal seeking restoration of the Order-in-Original with its findings given above cannot be allowed.

21. We now come to the question of the Chemicals and resins used for water treatment. Treated water is used as such in the manufacture of paper besides being used for manufacture of steam which is used for drying the paper. It has been urged by the learned Departmental Representatives that use of chemicals for treating water which is then boiled in boilers for obtaining steam which is used in the manufacture of paper does not make such chemicals and resins goods used in the manufacture of paper. Shri Lakshmikumaran had placed reliance on the observations of the Supreme Court in the J.K. Cotton Spinning and Weaving Mills and East End Paper Industries decisions laying down that if the process is so integrally connected with the ultimate production of goods that it would be commercially inexpedient to produce the finished goods without that process, all such inputs would get the benefit of credit of duty. The production of steam is a connected or integrated process in the manufacture of paper. Without steam, paper cannot be dried and manufactured and with untreated water the manufacture of paper would be commercially inexpedient, though theoretically possible. In such event also as settled by the Supreme Court, the goods used in such connected process also would qualify to be treated as goods used in the manufacture.

22. We had occasion to deal with the issue of chemicals used for treatment of water which is boiled to produce steam in Indian Explosives Ltd. v. Collector of Central Excise, reported in 1990 (50) E.L.T. 117. We extract the relevant paragraph dealing with this question from the said order:

"Shri Biswas, learned SDR raised a point that the purification of water for the purpose of production of steam is being carried out by the appellants mainly with a view to protect the boilers from being corroded by untreated water and this is not an essential process for manufacture of explosives as even without such treatment, water can be boiled and steam produced. We are not inclined to agree with this submission, since we find that in Fertiliser Corporation of India Limited v. Collector of Central Excise, Patna, decided by the Tribunal and reported in 1987 (12) ECR 535 it was held that use of sulphuric acid in the manufacture of Sodium Hexameta Phosphate for water treatment essential for manufacturing fertiliser amounts to ultimate use in the manufacture of fertiliser. The particular exemption was in respect of sulphuric acid used for manufacture of fertiliser. Even though part of sulphuric acid was used as stated above for the manufacture of a chemical which was required only for water treatment, it was held to be essential for the manufacture of fertiliser and, therefore, amounts to ultimate use in the manufacture of fertiliser. Following the above decision we hold that the chemicals used for treatment of water for production of steam would entitle the appellants to derive the benefit admissible to materials required for the manufacture of explosives. Accordingly, we allow the appeal. The appellants would be entitled to consequential benefits."

23. We find that the South Regional Bench had held in the Andhra Pradesh Paper Mills Ltd. case referred to supra that Soda Ash used along with lime in water treatment plant for softening of water being fed to the boiler to generate steam which is used at different stages of paper manufacture and alfoc powder used in the boiler water treatment but not for maintenance of boiler are eligible for modvat credit since softening of water is not only a process but also a requirement for the manufacture of paper. In this present matter, the chemicals and resins are used for treating water which is used in the manufacture of paper as well as for generating steam, and not for maintenance of boiler. Hence our decision is in line with the finding of the South Regional Bench.

24. The argument that the use of chemicals and resins for treatment of water which is used for obtaining steam is an earlier process as compared to manufacture of paper cannot be countenanced in view of the judgment of the Supreme Court in Collector of Central Excise v. Ballarpur Industries Ltd. reported in 1989 (43) E.L.T. 804 (SC). The contention in that case of the department that the use of Sodium Sulphate was used at a stage anterior to the manufacture of paper was opposed by the Counsel for the respondents stating that apart from the fallacy inherent in the attempt to dissect an otherwise integrated process of manufacture, the definition of manufacture which takes within it all ancillary and incidental processes should "secure to render the departments stand insubstantial". The Court observed that they found no substance in the contention of the departments counsel that the process in which the chemical was used was anterior to and at one stage removed from the actual manufacture of paper. They upheld the contention of the respondents counsel, referred to above. It was observed that without it (viz. the chemical used in the anterior process) the presence of the end-product, as such, is rendered impossible and that this quality should coalesce with the requirement that its utilization is in the manufacturing process as distinct from the manufacturing apparatus. The use of chemicals/resins for water treatment fully conforms to the abovementioned criteria laid down by the Supreme Court.

25. For the foregoing reasons, we find that the order of Collector (Appeals) in so far as allowing modvat credit on chemicals/resins for treatment of water and on felts is correct in law and deserves to be upheld. We, therefore, dismiss the departments appeal. For the same reason, the appeal filed by M/s. Straw Products Limited should succeed: We accordingly allow their appeal.