TMI Blog1992 (10) TMI 84X X X X Extracts X X X X X X X X Extracts X X X X ..... to obtain instant and complete reimbursement of specified duty paid on the goods used in or in relation to the manufacture of the said products. (These goods are referred to as "inputs"). In other words, the charge of excise duty on the abovesaid final products is only on the value added to the said inputs, which had already suffered duty. This scheme was introduced on 1-3-1986 by inserting Rule 57-A to Rule 57-N under the new section or heading "AA. Credit of duty paid on excisable goods used as inputs" to the Central Excise Rules, 1944. It is a modification or improvement of the pre-existing proforma credit scheme. Hence it is known as Modified Value Added Tax or MODVAT shortly. The object of the scheme is to eliminate the cascading effect on the excise duty levied on the final products, or, in other words, to avoid payment of duty on earlier duties paid. 3. The applicant herein is a manufacturer of cosmetics. It sought permission of the Assistant Collector of Central Excise, Madras-5 Division for taking the abovesaid MODVAT benefit on certain raw materials or plastic granules, known as LDPE, HDPE and PVC compound used in the manufacture of plastic jars etc., used as containers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rther use in the manufacture of the final product when the word 'intermediate' only means 'coming between two things as regards time, place or order'? 3. Is the Tribunal correct in law in holding that the manufacture of plastic containers is not an intermediate stage for completion of the manufacture and clearance of cosmetic and toilet preparations particularly with reference to Section 2(f) of the Central Excises and Salt Act, 1944, read with Chapter Note No. 4 of Chapter 33 of the Schedule to the Central Excise Tariff Act, 1985? 4. Is the Tribunal correct in law in not taking into consideration the expression used in Rule 57-A viz. duty paid on the 'goods used in or in relation to the manufacture of the said final products' as an integral part thereof and thus holding that the raw materials for the containers are not eligible for MODVAT benefit? 5. The relevant portions of the abovesaid Rule 57-A are as follows :- "Applicability. - (1) The provisions of this section shall apply to such finished excisable goods (hereinafter referred to as the "final products"), as the Central Government may, by notification in the Official Gazette, specify in this behalf for the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elation to any goods in the section or Chapter notes of the Schedule to the Central Excise Tariff Act, 1985 as amounting to manufacture." One of the above-referred to Chapter Notes, viz., Chapter Note No. 4 to Chapter 33 runs as follows :- "4. In relation to products of heading Nos. 33.03, 33.04 and 33.05 conversion of powder into tablets, labelling or relabelling of containers intended for consumers or repacking from bulk packs to retail packs or the adoption of any other treatment to render the products marketable to the consumer, shall be construed as "manufacture"." There is no dispute that the above-referred to excisable goods of the assessee come under the above-referred to headings. The above-referred to Rule 57-D(2) runs as follows :- "(2) Credit of specified duty allowed in respect of any inputs shall not be denied or varied on the ground that any intermediate products have come into existence during the course of manufacture of the final product and that such intermediate products are for the time being exempt from the whole of the duty of excise leviable thereon or chargeable to nil rate of duty : Provided that such intermediate products are - (a) used with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asoning found in those decisions could have at best only persuasive effect before us. 9. The main question to be considered is whether the abovesaid plastic granules could be taken as "inputs" within the meaning of that term in Rule 57-A, more particularly in the above-referred to explanation therein. The said explanation, inter alia, says "inputs" includes packaging materials. But, the said term does not include, inter alia, those packaging materials, in respect of which any exemption to the extent of the duty of excise payable on the value of packaging materials is being availed for packaging any final products. So far as the term "packaging materials" in Rasoi Ltd. v. Collector of Central Excise [1990 (49) E.L.T 522 (Tribunal)], the East Regional Bench, Calcutta observed as follows while dealing with the question whether the MODVAT benefit could be given in respect of tin plates used for making material containers, which were used for packing the manufactured excisable goods, viz., vegetable products :- "In our opinion, the question for determination turns on the expression packaging materials which are included in the scope of the term "inputs" in the explanation to Rule 57 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... looked into is, whether the material received could be known to have its normal use as packaging materials and is also established to be used as packaging materials, which are permitted under Rule 57A. If the intention was only to permit ready to use containers such as boxes or bottles, then the term used would have been 'package or container'. In the absence of any such restrictive meaning provided, the term 'Packaging material' has to be interpreted as such and cannot be interpreted in the restricted manner." 11. We are in agreement with the abovesaid view expressed in 1990 (49) E.L.T. 522 (Western Regional Bench of the Tribunal) and 1991 (55) E.L.T. 601 (Western Regional Bench of the Tribunal) (supra). We may also observe that given the abovesaid meaning for the term "packaging materials", the above referred to plastic granules will not also come under sub-clause (ii) of clause (b) in the above-referred to explanation under Rule 57-A, since admittedly those plastic granules are not packaging materials in respect of which any exemption is being availed of for packaging any final product. 12. No doubt in the above referred to 1991 (55) E.L.T. 601 (Tribunal), the decision of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wrapped in paper. Therefore, anything that enters into and forms part of that process must be deemed to be raw material or component part of the end-product and must be deemed to have been used in completion or manufacture of the end-product. This Court in the case of Empire Industries Ltd. Ors. v. Union of India and Ors.- 1985 (20) E.L.T. 179 (S.C.) = 1985 3 SCC 314 has explained the concept of 'process' in Excise Law. In view of the principle laid down therein and other relevant decisions, processes incidental or ancillary to wrapping are to be included in the process of manufacture, manufacture in the sense of bringing the goods into existence as these are known in the market is not complete until these are wrapped in wrapping paper. In J.K. Cotton Spinning and Weaving Mills Co. Ltd. v. Sales Tax Officer [1965 (16) STC 563 (S.C.)], this Court while construing the expression 'in the manufacture or processing of goods for sale' in the context of Sales Tax Law, though the concept is different under the Excise Law, has held that manufacture of goods should normally encompass the entire process carried on by the dealer of converting raw materials into finished goods. Where any par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r as security deposit. The Supreme Court held in that context that the receipt by the assessee-seller of the security deposit was also revenue receipt since sale was liquor with the bottle and that hence the security deposit was only part of the price paid. In this connection, the Supreme Court observed thus :- "It is clear to us that the trade consisted of sale of bottled liquor and the consideration for the sale was constituted by several amounts respectively called, the price of the liquor, the price of the bottles and the security deposit. Unless all these sums were paid the appellant would not have sold the liquor. So the amount which was called security deposit was actually a part of the consideration for the sale and therefore part of the price of what was sold." Therefore, the learned Senior Counsel submits that the above said plastic granules, which were utilised for manufacturing the above said containers for packing the above said excisable goods like shampoo etc. and for making them marketable, would be component parts for the above said goods which are the end-products. We see force in this submission also in view of the above said observations in the Supreme Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so will come to the aid of the applicant to claim MODVAT benefit in respect of them. Rule 57-D(2) says that credit of specified duty allowed in respect of any inputs shall not be denied on the ground that any intermediate products have come into existence during the course of manufacture of the final product and that such intermediate products are for the time being exempt from the whole of the duty of excise leviable thereon. Here again, for the term "manufacture", the above said Section 2(f) definition read with the above said Chapter Note No. 4 to Chapter 33 would apply and so, the above said containers could be taken as the above said "intermediate products" which have come into existence "during the course of manufacture of the final product". In such a case, the requirement mentioned in the proviso to Rule 57-D(2) will stand satisfied since the above said containers, the intermediate products, are admittedly "used within the factory of production in the manufacture of a final product" and specified as inputs or final product under the Notification issued under Rule 57-A. 21. This apart, it cannot also be said that there is no cascading effect if the value of the containers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Chapter Note Nos. 4 to Chapter 33, those bags would be "intermediate products" (for the abovesaid detergent powder) spoken to in Rule 57-D(2). 23. Likewise, the Tribunal in Shivaji Works Ltd. v. Collector of Central Excise [1990 (50) E.L.T. 50 (Tribunal)] and Mysore Kirloskar Ltd. v. Collector of Central Excise [1990 (50) E.L.T. 175 (Tribunal)], which were relied on by the Additional Central Government Standing Counsel, went wrong cannot be said to be correct in holding that sand moulds prepared using certain chemicals were not intermediate products, coming into existence during the course of manufacture of the final product, iron and steel, on the ground that the said sand moulds were independently manufactured. Here again Section 2(f) definition read with the abovesaid Chapter Note No. 4 was not considered. 24. The learned Additional Central Government Standing Counsel also made an attempt to rely on Rule 57-C. But Rule 57-C only says that no credit of the specified duty paid on the inputs used in the manufacture of a final product shall be allowed if the final product is exempt from the whole of the duty excisable thereon. But, in the present case, the abovesaid containers a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i-judicial tribunal is controlled by any such direction, that forges fetters on the exercise of quasi-judicial authority and the presence of such fetters would make the exercise of such authority completely inconsistent with the well-accepted notion of judicial process." In the present case, one of the Board's clarification was as follows :- "Rule 57A allows Modvat credit for 'packaging materials' and not on raw materials for making such packaging materials. Packaging materials are ready to use articles such as containers, boxes, cartons, bottles etc. Therefore modvat credit will be admissible for the duty paid on such ready to use packaging materials but not on the raw materials such as plastic granules, steel sheets/strips etc. used for making packaging materials. Raw materials like plastic granules or steel sheets/strips are general purpose articles which can be put to various uses, one of which is making of packaging materials. These raw materials by themselves are not recognisable as packaging materials." As already stated, we are unable to agree, with this interpretation. We have already pointed out what actually is meant by packaging materials. They only refer to the r ..... X X X X Extracts X X X X X X X X Extracts X X X X
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