Customs, Excise and Gold Tribunal - Delhi
Residency Foods And Beverages Ltd. vs Commr. Of C. Ex. on 6 March, 1998
Equivalent citations: 1998(101)ELT103(TRI-DEL)
ORDER S.S. Kang, Member (J)
1. The appellant filed this appeal against the Order-in-Appeal No. 145/CE/ALLD/92, dated 5-8-1992 passed by Collector (Appeals), Central Excise, Allahabad whereby the benefit of Modvat credit in respect of soda ash and filter paper used in or in relation to manufacture of aerated water was denied to the appellant. The Collector (Appeals) also remanded the case back to the adjudication authority in respect of eligibility of Modvat on glass bottles.
2. The Counsel on behalf of the appellant submitted that appellants are engaged in manufacture of aerated water falling under Chapter 22 of C.E. Tariff Act, 1985. He further submitted that with effect from 25-7-1991 aerated water was included as specified final product under Rule 57A of Central Excise Rules, 1944. The appellants filed declaration on 8-8-1991 in respect of inputs under Rule 57A used in or in relation to the manufacture of final products.
3. He further submitted that water is main ingredient in aerated water consisting of 90% of aerated water. The water used in manufacture of aerated water contains minerals and vegetation and would make the water unsatisfactory for preparation of aerated water. He further submitted that it is essential to remove the solid matter and odour from the water. Therefore the water is first treated in the plant with soda ash, lime and bleaching powder. Thereafter the treated water is filtered through the filter and carbon filter when activated carbon is used to remove the colour and odour. He further submitted that soda ash is also used for killing the micro-organism that are left over in the equipment. The soda ash is also used in cleaning the glass bottles. He relied upon the decision of the Tribunal in the case of Black Diamond Beverages Ltd. - 1994 (69) E.L.T. 572. The Tribunal in this case allowed the benefit of Modvat credit in respect of caustic soda used for washing glass bottles for aerated water.
4. In respect of filter paper, the ld. Counsel submitted that simple sugar syrup is prepared before mixing with concentrated treated water and carbon dioxide. The simple syrup after activated with carbon is filtered to remove the sediments. The filter paper is used to filter simple sugar syrup which is further used for manufacture of aerated water. He further submitted that removal of sediments from the sugar syrup is essential in the process of aerated water. He relied upon the decision of the Tribunal in the case of Union Carbide of India v. C.C.E., Calcutta reported in 1996 (86) E.L.T. 613 (Tribunal)
5. In respect of glass bottles, the ld. Counsel submitted that in the present case, the benefit of Modvat credit in respect of glass bottles is claimed as inputs by virtue of inclusive definition of the term input under Rule 57A of the Central Excise Rules, 1944. The aerated water which is final product attracts specific rate of duty. Hence the question of inclusion of cost of packing material in the assessable value of the product in order to consider whether packing material are excluded category under Rule 57A of the Central Excise Rules, 1944 is not warranted. He submits that the Collector (Appeals) has erred in observing that glass bottles being returnable to the factory and cost having not been included in the aerated water under Section 4 of the Central Excise Act, the same is excluded from the definition of the term inputs. He therefore prays that appeal be allowed.
6. Shri Jangir Singh, ld. JDR appearing on behalf of the respondent submitted that the Collector in the impugned order remanded the matter back to the adjudication authority in respect of glass bottles with the observation 1998 ] RESIDENCY FOODS & BEVERAGES LTD. v. COMMR. OF C. EX., ALLAHABAD 105 that the issue of eligibility of Modvat credit on glass bottles needs detailed study regarding its circumvance within the meaning of fix assets by examining the balance sheet of the appellant factory in the financial year 1990-91,1991-92. In respect of eligibility of Modvat credit on soda ash and filter paper. He reiterated the finding of the lower authorities.
7. Heard both sides. In the present case, the benefit of soda ash used in or in relation to the manufacture of aerated water is denied on the ground that it has been used for the purpose of cleaning, disinfecting and for the maintenance of the equipment. Hence it is not qualified as input for admissibility of Modvat credit. The soda ash is used for softening the water and thereafter the water is used in the final product and also for cleaning the glass bottles. The Tribunal in the case of Black Diamond and Beverages (supra) held that washing the bottles of aerated water is mandatory requirement for Prevention of Food Adulteration Act, 1955 and hence it is a process of incidental or ancillary to the completion of manufactured product in marketable form. The Tribunal held that without cleaning the bottles the filling cannot be undertaken as per the statutory requirement and as such for cleaning process, the soda ash plays a part. In the present case the soda ash is used for washing the glass bottles and for softening the water. Following the ratio of the decision of Tribunal in the case of Black Diamond and Beverages (supra), we hold that the appellants are entitled to the benefit of Modvat credit in respect of soda ash used in softening the water and for cleaning the bottles.
8. In the impugned order, the benefit on filter paper is denied on the ground that filter paper is used in the machine namely in the filter press. Hence it cannot be accepted as an input. The filter paper is used to filter the sugar syrup which is further used in manufacture of aerated water. Hence filter paper is used in or in relation to the manufacture of final product i.e. aerated water. The Larger Bench of the Tribunal decision in case of Union Carbide of India (supra) while considering the eligibility of inputs i.e. felt wire, wire cloth, wire mesh, dandy used in manufacture of paper and paper industry held that these inputs used in the machine or machinery in the manufacture of paper and paper product are eligible inputs under Rule 57A of Central Excise Rules. Such inputs are not excluded by virtue of exclusion clause (i) of the Explanation to the Rule. Applying the ratio of the Larger Bench of the Tribunal, we hold that the appellants are entitled to the Modvat credit in respect of filter paper.
9. The Collector (Appeals) in the impugned order remanded the matter back to the adjudication authority in respect of Modvat on glass bottles with the observation that Modvat credit on glass bottles needs detailed study regarding the circumvances within the meaning of fixed assets by examining the balance sheet of the appellants factory. The matter was remanded back on 5-8-1992. There is nothing on record that matter is still pending with the adjudicating authority or adjudicating authority has taken any view. In these circumstances, we are not examining this aspect of the appeal. If the matter is pending before the adjudicating authority, the appellants are at liberty to raise all the legal as well as factual pleas before the adjudication authority and if the adjudication authority has taken any view against the appellants then they can avail the legal remedies available against that order. The appeal is disposed of in the above mentioned terms.
S.K. Bhatnagar, Vice President While I broadly agree with Hon. Member (J)'s views in the matter, I would like to elaborate some of the factual technical and legal aspects as follows :-
10. I observe that the appellants have described the manufacturing process as follows :-
The process of manufacture of soft drinks is mainly divided into three parts :-
1. Syrup making.
2. Water treatment.
3. Bottling.
In syrup making process, the syrup of a particular product is prepared by heating sugar with Activated Carbon Powder and Filter aid (Hyflosupercel) in treatment tank for a specified time and up to a particular temperature. During treatment most of the colour, odour and some organic impurities are removed from sugar syrup by the activity of activated carbon. This treated syrup is passed through filter press fitted with filter papers and heat exchanged and clear syrup is collected in the syrup mixing tank. Filter papers help in the removal of impurities in sugar and also the activated carbon and filter aid added in the mixing tank. The essence and sugar syrup are mixed in the tank by the help of mechanical stirrer and finally, the flavour syrup is ready for use in finished products.
The second process is water treatment. As an added ingredient, ingredient, water can comprise up to 90% of a soft drink. The quality of water is thus of particular importance to the soft drinks manufacturers. In this process, we continuously feed water from Bore Well to our treatment tank and water treatment chemicals such as Hydrated lime, bleaching powder and Ferrous Sulphate are also dosed continuously to tank and mixed in the process and treated water is taken to the storage tank. The objects of water treatment are as follows :-
1. Uniform water at all seasons of the year.
2. Removal of colloidal and suspended matters.
3. Removal of colour.
4. Removal of undesirable off-taste and odours.
5. Reduction of alkalinity to a set level.
6. Reduction of hardness.
7. Free from micro-organisms.
The treated water is then passed through the specially designed Filteration plants namely Sand Filter and Activated Carbon Filter (containing the chemical Activated Carbon Granular) and finally we are getting standard water suitable for soft drink bottling. For maintaining the equipments in sanitised condition, we are also using Soda Bi-Carbonate, Soda Ash, TSP etc. The third process is called Bottling, in which both water and syrup are mixed together along with carbon dioxide gas and bottles. In a soft drink bottling plant, returnable glass bottles are commonly used for filling of soft drinks. To ensure the goods keeping and aesthetic quality of soft drink, it is necessary that bottles are sparklingly cleaned and sterile before beverage filling. For uncleaning bottles, a machine called bottle washer is used along with washing chemicals such as Caustic Soda, Tri-sodium-phosphate and Monosodium gluconate. In the bottle washing system, in one end of washer the dirty bottles are fed and the bottles are washed automatically while passing through different designed chambers containing chemical solutions at different temperatures and concentration. Finally, clean and sterile bottles are collected on the opposite end of bottle washer and are directed towards Filling Machine, called Filler through conveyor lines. Before the beverage reaches the filling machine it is saturated with carbon dioxide gas in carbonator. Carbon dioxide gas provides the characteristic sparkle to soft drink and also prolongs the shelf life of the products. In the filling machine the bottles are filled with the beverage under pressure and then bottles are moved towards crowner where sealing is done with the help of crowns. The crowns are used in order to retain the carbonation and flavour as well as to protect the products from outside contamination and spoilage. Then the bottles are moved towards inspection point where the bottles are checked for maintaining the required standard. Then the finished products are transferred to shipping department for shipment.
For doing the above mentioned process mechanically, we require Diesel oil for running our General set for generation of electricity.
11. Ld. Counsel has drawn attention towards the above manufacturing process emphasising in his own way the aspects relevant for the purpose of deciding this case as brought out in paras 2 to 5 of this order. He had in addition drawn our attention to the Encyclopedia of Chemical Technology (2nd Edition P. 710-720) by Kirk Othmer which refers to carbonated beverages and indicates their ingredients and the manufacturing process in details incorporating the use of various items in such a process including, inter alia, activated carbon, colours, flavours, carbon dioxide, preservatives and packaging. While referring to packaging they also refer to bottles and bottle washing and use of washing chemical etc. in bottle washing and further mention, inter alia, that "re-usable bottles make bottle washing an important part of production of carbonated beverages. The bottles for carbonated beverage must be of "good mechanical strength, attractive in appearance and sterile for each use." Bottles are "cleaned and sterilised with warm alkaline solution, then rinsed with potable water". The alkaline solution can be composed of caustic soda (Sodium Hydroxide), sodium carbonate, tri-sodium phosphate or sodium meta silicate. Caustic soda is the principal ingredient because it has by far the best germicidal properties."
12. Ld. Counsel has further stated that w.e.f. 25-7-1991 aerated water was included as a specified final product under Rule 57A and the appellants had filed declaration in respect of the inputs used or in relation to the manufacture of final products. It was also his submission that none of the items was hit by exclusion clause and the packaging was also required to be taken into consideration as the duty on the item was specific during the relevant period. He has in this connection drawn our attention to the copies of the clarification issued by the department in respect of packing materials and further cited the following cases in support of his contentions :-
1. 1990 (48) E.L.T. 508 (Bom.)
2. 1994 (69) E.L.T. 572 (Tribunal)
3. 1989 (43) E.L.T. 201 (S.C.)
4. 1997 (91) E.L.T. 422 (Tribunal)
5. 1996 (86) E.L.T. 613 (Tribunal)
6. 1996 (86) E.L.T. 177.
13. Ld. DR reiterated the department's view as contained in the impugned order and emphasised that the washing chemicals are only meant for washing of the bottles and not used in the actual process of manufacture of the carbonated beverages or aerated water. Further the glass bottles are only containers used for packing the final product and in any case the Collector has only remanded the matter insofar as the issue relating to the bottles was concerned.
14. We have considered the above submissions. I observe that during the relevant period the beverages (including aerated waters) were covered under Chapter 22 and under Heading 22.01 and sub-headings 2201.11 and 2201.12 as also under Heading 22.02, sub-headings 2202.11, 2202.12, 2202.13 and 2202.14. The rate of duty had been prescribed w.r.t. "each glass bottle". In other words the aerated water contained in each glass bottle was subject to the prescribed rate of duty (which was specific). I am mentioning this as it indicates that from the Central Excise point of view the commodity concerned is not merely aerated water as such but aerated water (etc.) as contained in a glass bottle (as described under the above sub-headings). Therefore, the question which arises before us is regarding the inputs required for manufacture of this product or in relation thereto and their eligibility for Modvat during the relevant period. It is significant that (apart from the tariff position) even otherwise certain beverages such as aerated water become marketable only when packed in a container (glass bottle, plastic bottle, tin can or tetra-pack etc.) and it was each such bottle (or container) which was a unit of sale. I therefore consider that glass bottle is an essential input required in or in relation to the process of manufacture of the final product as sold in the market. Hence, if the bottles received were duty paid the Modvat credit was required to be allowed. (The Addl. Collector had however, remanded the matter in respect of the bottles and a long time has passed since then and we do not know whether the A.C. has since already taken further action in the light of the Addl. Collector's order. The Addl. Collector's reference to balance sheet is not understandable. However, if some order has already been passed, as mentioned by my ld. Colleague the law will take its own course).
15. The fact that the bottles were reusable and returnable containers would only affect this position to the extent that the authorities below are required to ensure that credit is not repeatedly availed in respect of the same bottles and undue benefit does not accrue.
16. The various Collectorates have already issued Trade Notices apparently based on Board's Circular to the effect that Modvat credit on duty paid on glass bottles/tin containers used for aerated water would be available for payment of duty on finished products as aerated waters are chargeable to specific rate of duty. This was required to be kept in view by the departmental authorities. [I would only like to add as an abundant caution that all the headings and sub-headings do not prescribed the specific rate of duty and some headings and sub-headings prescribe ad valorem fate of duty; the Board's circular and the Collectorate Trade Notices would cover only those items which were classifiable in the sub-headings prescribing the specific rate of duty and only during the period such specific rate(s) remain in force].
17. The judgment of the Hon. Bombay High Court in the case of Godfrey Philips India Ltd. -1990 (48) E.L.T. 508 had been passed in the context of set-off of duty in r/o manufactured tobacco. It is of limited use for the purpose of this case that is only to the extent of noting that it has been held that the words inputs and ingredients, are not synonymous. We should also keep in mind that insofar as tobacco was concerned the Central Excise Act during the relevant period prescribed a definition of 'manufacture' incorporating a legal fiction and deeming provisions and the above judgment was passed with reference to and in the context of the said definition.
18. The Tribunal has also held in the case of Black Diamond and Beverages -1994 (69) E.L.T. 572 that Modvat is available on caustic soda used for washing glass bottles for aerated water as inter alia such washing of the bottles for aerated water was a mandatory requirement under Prevention of Food Adulteration Act, 1955 and that it is a process of incidental or ancillary to the completion of manufactured product in marketable form. I consider that though certain specific items have been considered in the above case, the ratio thereof would apply to the use of any material or chemical and process for washing of containers of all types (including glass bottles) for beverages including aerated waters and in view of the statutory provisions and the fact that it was required from hygenic point of view in respect of an item meant for human consumption. In other words these items were not merely required in connection with an incidental or ancillary process but were essential inputs for the purpose of manufacture of the final product. Further, the filter papers were also consumable items used in relation to the process of manufacture.
19. Similarly the crown cork (another item) was essential for marketing the goods and therefore, covered by the term 'input' eligible for Modvat credit.
20. The department has not been able to show that the inputs in question or the finished product for that matter were eligible to any notification exempting them from the whole of duty leviable thereon during the relevant period. Therefore, all that we have to see is whether the inputs and outputs in question were covered by the Rule 57A read with Notification No. 177/86, dated 1-3-1986 (as amended) and in force during the relevant period. In this connection, it is seen that the ld. Counsel is correct in pointing out that w.e.f. 25-7-1991 aerated water was included as a specified final product under Rule 57A; and it is observed in this connection that Notification No. 177/86 as amended from time to time and in force during the relevant period includes in the table annexed thereto Chapter 22 both in the description of inputs as well as the final products. In view of the above discussion, I agree with my ld. Colleague that the appeal is required to be accepted in the light of our above observations.