Customs, Excise and Gold Tribunal - Mumbai
Parle Products Pvt. Ltd. vs Collector Of Central Excise on 22 October, 1990
Equivalent citations: 1991(34)ECC111, 1991ECR614(TRI.-MUMBAI), 1992(57)ELT152(TRI-MUMBAI)
ORDER R. Jayaraman, Member (T)
1. This is an appeal directed against the order-in-appeal bearing No. SKM-623/90.B.I. passed by the Collector of Cen. Excise (Appeals), Bombay dated 8-5-1990.
2. The appellants herein are the manufacturers of biscuits and confectionery and they have opted for modvat scheme. They claimed modvat benefit for certain goods viz. M.G. Poster paper, paper, printing inks, plain aluminium foils etc. It was alleged by the Department that these inputs are neither consumed as raw materials for their final products nor are they directly used as packing materials. These inputs are captively consumed for the manufacture of intermediate products viz. printed/laminated papers and printed/laminated alumin foils on which no duty is paid. These intermediate products also cannot be said to be arising during the course of manufacture of their final product. Therefore, modvat credit in respect of the duty paid on the aforesaid products is not admissible. Another objection taken by the Department was that the inputs 'refined coconut oil', mono acid calcium phosphate sodium met sulphate, printing ink auxiliaries, printed cartons and thinner are not mentioned in the declaration. 10 show cause notice were issued by the Department. The issues involved as identified by the Asstt. Collector in the show cause notice dated 3-9-1987 are the following:
(i) Non-filing of declaration in the prescribed proforma during the period from 4-3-1987 to 18-6-1987 and the amount of credit availed during the said period is Rs. 50,06,431.18 ;
(ii) Inadmissibility of credit availed in respect of raw materials used in the manufacture of intermediate products such as printed/laminated aluminium papers and printed/laminated aluminium foils; and
(iii) non-inclusion of certain inputs in their declarations dated 4-3-1987 and 6-3-1987.
3. As regards the issue at Sr. No. (i), it was not adjudicated upon by the Asstt. Collector on account of the fact that the appellants have filed Writ Petition in the Bombay High Court and obtained stay order for the recovery of the demand for Rs. 50,06,431.18. The other 2 issues were taken up by the Asstt. Collector for adjudication and in the adjudication proceedings concluded by the Asstt. Collector, demand to the extent of Rs. 1,17,65,507.18 was confirmed. The matter was taken in appeal before the Collector (Appeals) who in the impugned order allowed the modvat credit only in respect of refined coconut oil but rejected the modvat credit in respect of other items and confirmed the order of the Asstt. Collector. The present appeal is against the aforesaid order.
4. Shri Setalwad, the learned advocate, on behalf of the appellants identified the following facts involved in the appeal:
The appellants are manufacturers of biscuits, confectionery and chocolates and these products can be cleared and sold only when they are wrapped either in paper or aluminium foil which are printed in different colours and/or laminated. Printing is necessary to identify the products of the manufacturers apart from indicating the details of price and other particulars as required under the Packaged Commodities Rules. These products cannot be sold without such packing. These ready-to-use packaging materials are made from duty paid aluminium foils and paper and other materials' such as printing inks, wax and certain chemicals for lamination are obtained by them which are used for waxing/laminating/printing of aluminium foils and paper to make them ready to use as packaging materials. The appellants claimed modvat credit in respect of such duty paid ready to use packaging materials purchased as such. They also claimed modvat credit in respect of inputs used for preparation of ready to use packaging materials since they were also prepared in their own factory. The Department has not objected to the modvat credit in respect of duty paid on 'ready to use printed packaging materials' purchased as such but raised objection only in respect of inputs used for preparing the ready to use packaging materials manufactured by them in their own factory. The learned advocate indicated that the amount of demand covering the inputs for packaging materials denied to them amounts to Rs. 1,17,50,795.97 while that on chemicals where the allegation is that they were not correctly declared in the modvat declaration, the duty demand is for Rs. 45,252.86. Though the show cause notices and the Asstt. Collector's findings were to the effect that the ready to use packaging materials were intermediate products, the Collector (Appeals) had adopted a contrary stand to the effect that these were not intermediate products because they were not further processed. They were final products and these final products were exempted from duty. In the case of chemicals, the Collector (Appeals) has confirmed the order of the Asstt. Collector holding that they were not specifically mentioned in the declaration. After setting out the aforesaid factual position, he identified the following issues for determining the issues in this appeal:
(i) Whether inputs such as plain aluminium foils and other materials such as printing ink and other substances used to make printed/laminated ready to use packaging materials are entitled to modvat benefit;
(ii) whether the chemicals, mono acid calcium phosphate and sodium meta phosphate which are going directly in the manufacture of biscuits, can be denied the modvat credit merely because they were not declared in the declaration as chemical 'P' and Chemical'S', which are the abbreviated forms of chemicals as used by them.
5. As regards the issue at Sr. No. (1), the learned advocate advanced the following arguments :-
There are several judicial pronouncements wherein the High Courts as well as the Tribunal have been consistently taking the view that wrapping paper used for covering the other varieties of paper is entitled to proforma credit under Rule 56A. In the latest judgment of the Supreme Court in the Eastend Paper, the Supreme Court, has held that wrapping paper was entitled to proforma credit under Rule 56A holding it as a component for the manufacture of paper. He gave the following citations in this context :-
(i) Seshayee Paper - 1984 (15) ELT 3 (Madras H.C.); (ii) Orient Paper - 1984 (18) ELT 88 (Tri); (in) Orient Paper - 1986 (24) ELT 135 (Tri); (iv) Straw Products - 1986 (24) ELT 286 (Orissa H.C.); (v) Eastend Paper - 1989 (43) ELT 201 (S.C.).
The, learned advocate heavily relied on the judgment of the Supreme Court in Eastend Paper Industries and particularly referred to para (6) of the judgment, wherein it has been held that to be able to be marketed or to be marketable it was an essential requirement for goods to be wrapped in paper. Anything required to make goods marketable, must form part of the manufacture and any raw material or any materials used for the same would be component part for the end product. In this case the laminated foil and the laminated printed aluminium foils and paper are the ready to use packaging materials and they are to be construed as components of the final product viz. biscuits or confectionery in terms of the aforesaid judgment of the Supreme Court. Hence all the inputs going to the manufacture of this component viz. ready to use packaging materials should get the benefit of modvat credit. His next argument was that in the case of Jay Engineering Works Ltd. reported in 1989 (39) ELT 169 (SC), the Supreme Court held that even the nameplate affixed on the electric fan has been construed as component within the meaning of Rule 56A even though the fan can function without a nameplate. It is held that the fan is not marketable without nameplate and hence proforma credit was allowed in respect of the duty paid on nameplate. He, therefore, contended that since biscuits and confectionery cannot be marketed without proper packing, all the materials used for preparation of 'ready to use packaging materials' should be construed as raw materials for the finished products. He also contended that it is not proper to treat these inputs as inputs for an intermediate product or for a different final product. They are to be construed as 'inputs' used in the manufacture of biscuits etc. which cannot be marketed without proper packing.
6. The next argument of the learned advocate was that explanation to Rule 57-A specifically includes certain articles as inputs and specifically excludes certain other articles. The specific inclusion of certain articles does not curtail the meaning of the word inputs as used in the operative part of Rule 57A(1). In this context he referred to pages 110-113 of the Principles of Statutory Interpretation. He, therefore, contended that all goods used in or in relation to the manufacture of the finished products are therefore inputs, even if they are not specifically enumerated in the Explanation unless they are specifically excluded. In this case, the inputs in respect of which modvat credit claimed is not excluded specifically. He also referred to the following decisions directly in the context of the modvat credit:
(i) In the case of Supersnacks reported in 1990 (47) ELT 60 (Tri.) the Tribunal had held that plain papers even though subsequently waxed or printed are inputs within the meaning of Rule 57A.
(ii) In the case of Rasoi - reported in 1990 (49) ELT 522 (Tri.) the East Regional Bench of the Tribunal held that tin-plates and tin sheets are inputs within the meaning of Rule 57A notwithstanding the fact that they were converted into metal container before they were used as ready to use packaging material of the final product.
In the context of the aforesaid decisions of the Tribunal directly on the modvat credit, the input relief in respect of plain paper and plain aluminium foils, cannot be denied. He also contended that the reliance placed by the Collector (Appeals) on the order of the Tribunal in the case of Pond's (India) Ltd. reported in 1988 (38) ELT 351 (Tri.), is mis-conceived inasmuch as in that case the Tribunal was considering the scope of Rule 57F(2) and it is not the case here. Moreover, in the Pond's case, plastic containers could be put to other uses, unlike the ready to use packaging materials of the present appellants, where these materials could not be put to any other use and could not be sold or utilised for other purposes. If ready to use packaging materials are treated as goods, which however, is not correct, they can be only construed as intermediate goods and because of the provisions of Rule 57D, even though these intermediate goods are exempted, modvat credit would still be available for payment of duty towards the finished product. It was also contended by him that even the observations of the Tribunal in the case of Rasoi are not the good law because of the fact that the Supreme Court has clearly laid down that the packaging materials are raw materials or components of the final product.
7. With regard to the denial of modvat credit on the two chemicals, he contended that merely because they were not described with adequate accuracy, the statutory benefit cannot be denied to the applicants. There is no dispute that these chemicals find direct use in the manufacture of biscuits. In this context he relied upon the judgment in the case of Khosla Cast Steel & Alloys Pvt. Ltd. reported in 1989 (44) ELT 691.
8. Shri Arya, the departmental representative contended that printed laminated aluminium foils and paper cannot be construed as intermediate products. Intermediate product is pre-cursor to the final product and it should accrue in the product stream. It is not disputed that these goods are used only for packaging of the final product viz. biscuits and confectionery. They can be independently manufactured. It is also revealed that they are so manufactured independently outside and bought by the appellants for packaging. Hence, they can be only construed as final product used for packaging the biscuits and confectionery. These final products being exempted, no modvat credit could be availed on in respect of the duty paid on inputs used in the manufacture of such exempted final product. Hence, the question of applying Rule 57D does not arise in this case. He also referred to the judgment of the Tribunal in the case of Kusum Products Ltd. reported in 1990 (48) ELT 50 (Tri.), wherein it has been held that polythene granules brought for the manufacture of bags for packaging detergent cannot be given modvat benefit. He also contended that the Supreme Court's decision in the case of Eastend Paper Industries Ltd. is in the context of proforma credit on duty paid on wrapper paper used for wrapping the other varieties of paper. In the context of that the term 'components or raw materials' used in Rule 56A, the Supreme Court have allowed proforma credit in respect of wrapping paper treating it as component. However, in the present case, the issue to be considered is in the context of Rule 57A, where packaging materials are specifically mentioned as inputs. Hence any interpretation on the term 'packaging materials' has to be made independently and the decision of the Supreme Court in Eastend Paper Industries Ltd. may not be appropriate to consider the scope of the term 'packaging material' referred to in Rule 57A.
8A. After hearing both the sides, we find that though the modvat declaration filed under the appellants' letter dated 15-6-1987 described a number of items against the final product 'packaging materials', the disputed items as urged before us relate only to plain paper, plain aluminium foils, printing ink and certain materials for lamination and printing of these papers and foils. We, therefore go on that basis since the disputed items are not specifically indicated either in the order-in-original or in the order-inappeal. The question is, whether these inputs brought in by the appellants for preparation of ready to use packaging materials could be construed to be inputs used in or in relation to the manufacture of the final product and the credit of duty paid on these inputs could be availed of towards the payment of duty on the final product viz. biscuits and confectionery. This is the main issue to be decided in this appeal. A number of case laws have been cited by the learned advocate and he particularly made emphasis on the Supreme Court judgment in the case of Eastend Paper Industries Ltd. reported in 1989 (43) ELT 201 (SC). He emphasised that for marketing their product, it is necessary to wrap them with wrapping paper or foil and anything required to make the goods marketable must form part of the manufacture and any raw material or any material used for the same should be component part for the end product. The learned advocate contended that 'ready to use packaging materials' produced by them out of plain aluminium foils and paper using certain other inputs materials are used for packing the biscuits and confectionery items and without this packing, the goods cannot be marketed, and adopting the ratio of the Supreme Court's judgment, these "ready to use packaging materials" become a component of the final product viz. biscuits and confectionery and any material used for preparation of such components should be construed as inputs used in the manufacture of final product and accordingly modvat credit should be extended. This argument is, no doubt, very attractive. However, it would be necessary for us to approach this with a certain amount of causion required for analysing the implication of the provisions of Rule 57A, and the benefits extended under that Rule. The Supreme Court in the case cited supra dealt with the issue relating to the extension of proforma credit on wrapper paper used for packaging different varieties of paper. The question for consideration before them was whether proforma credit allowable in respect of inputs used as raw materials or components could be made available in respect of such wrapper paper. The Supreme Court held that the wrapper paper used for wrapping other varieties of paper makes the goods marketable and hence form part of the manufacture and in that view held it to be component part of the end product. In the case before us, provisions of Rule 57A are somewhat different. As per Rule 57A, all the goods used in or in relation to the manufacture of the final product are referred to as inputs. However, by way of explanation, certain items are included while certain items are excluded. It would be necessary to reproduce the explanation to Rule 57A for proper appreciation :
"Explanation : For the purposes of this rule "inputs" includes -
(a) inputs which are manufactured and used within the factory of production, in or in relation to, the manufacture of final products, and
(b) paints and packaging materials, but does not include -
(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 Act;
(iv) cylinders for packing gases and
(v) plywood for tea chests."
9. From the above, it can be seen that the specific inclusion for packaging materials is made, provided these packaging materials have not availed of any exemption of excise duty payable on the value thereof and where the cost of packaging materials is not included or had not been included during the preceding financial year in the assessable value of the final product. It is not the case of the Department that the appellants have availed of any exemption with regard to the packaging materials nor were they not including the cost of such packaging materials. The only point of dispute is that these packaging materials produced by the appellants themselves are totally exempted from duty and hence inputs which go into such packaging materials cannot avail of modvat benefit towards the duty payable on the final product. Hence, in our view, the point for interpretation should be the scope and term of "packaging materials" referred to specifically in the explanation to Rule 57A. It is not for us to consider whether it is a component or raw material for the final product. Moreover, the scheme of Rule 57A itself lays down that we have specifically to treat 'packaging material' as inputs. Hence any interpretation of the term 'inputs' referred to under Rule 57A in the context of packaging materials has to be done independently. The judgment of the Supreme Court considered only the wrapper paper as a component. The Supreme Court had not gone to consider printing ink and other laminating materials as components for paper. Even taking the judgment of the Supreme Court as applicable, it can be taken to be applied only to the paper and aluminium foils, which can be construed as components of the final product in terms of the aforesaid judgment. The items like printing ink and other materials used for lamination or printing could not be construed to be components even in terms of the aforesaid judgment of the Supreme court. However, a plea was urged by the learned advocate that since these wrapping materials are construed as components, any input used for making these wrapping materials could be construed as inputs for the final product. If this argument is accepted, we will be placed in such a situation, where any dividing line cannot be drawn. Printing the brand name and the manufacturer's name on the foils and paper is done to identify the product with the manufacturer. This is not the function of packaging. Printing ink has varied uses and it cannot be definitely identified as a packaging material. Likewise, the other chemicals used for lamination cannot be identified as a packaging material. Likewise, the other chemicals used for lamination cannot be identified as packaging materials. In this view of the matter we are unable to appreciate the argument of the learned advocate that the inputs such as printing ink and other chemicals used for lamination and printing should be construed as packaging materials or as an input used in the manufacture of packaging materials being a component and should be extended modvat benefit. We, however, see considerable force in the contention of the learned advocate that the plain foils and paper used for packaging cannot be denied the modvat benefit. In this context, we particularly take note of the decision of the East Regional Bench in the case of Rasoi reported in 1990 (49) ELT 522 (Tri.), which is somewhat directly On the issue. In that case dealt with by the East Regional Bench, the appellants brought tin-plates and tin-sheets and manufactured metal containers and captively used for packaging the final product. The modvat credit was denied in respect of tin-plates and tin-sheets on the ground that they were used in the manufacture of metal containers, which is a distinct final product. This contention was not accepted by the East Regional Bench, who held that tin-plates and tin-sheets are definitely identifiable as packaging materials in the context of Rule 57A, wherein, "packaging materials" have been specifically referred to. We have no reason to differ from the view taken by the East Regional Bench in the aforesaid case. We are of the view that plain paper and plain aluminium foils which are used for packaging of biscuits, confectionery and chocolates can definitely be identified as packaging materials as referred to in the explanation under Rule 57A, notwithstanding the fact that these plain foils and paper are subject to subsequent process of printing or lamination within the factory. They should be construed as packaging materials and the credit of duty paid on such paper and aluminium foils should be made available for utilisation towards the payment of duty on the final product. Rule 57A specifically provides for modvat credit in respect of packaging materials and these materials are identifiable as packaging materials. Hence, credit cannot be denied thereon.
10. The appellants contend that they are bringing ready to use packaging materials from outside after payment of duty on such printed/laminated materials and credit of duty paid on this ready to use packaging materials is availed of by them. Hence they plead that similar benefit should be extended, even if such ready to use packaging materials arc made by themselves. We would like to look at this issue from a different angle. Rule 57A refers specifically to packaging materials. When the "ready to use packaging materials" are received by the appellants after printing and lamination, no-one can deny that they are not packaging materials. Hence credit has to be allowed on the duty paid on such packaging materials. However, when they receive plain aluminium foil, paper, printing ink and other chemicals for lamination, among the aforesaid items, only aluminium foil and paper could be identified and construed as packaging materials as per the explanation to Rule 57A. The other materials viz. printing ink and chemicals used for lamination cannot be construed as packaging materials by any stretch of imagination. We are required to interpret the term 'packaging material' as an input for the final product and not the inputs going to make the packaging material itself. In this view of the matter, we hold that the appellants are entitled to modvat credit only in respect of plain paper and aluminium foil treating them as 'packaging materials' being the input for the final product as per explanation to Rule 57A. In respect of the other inputs such as printing ink and other chemicals used for lamination, they are not eligible for modvat credit being not identifiable as packaging materials. Accordingly, we direct the Asstt. Collector to restrict the demand only to the extent of modvat credit involved on inputs like printing ink and other substances used for lamination and printing but allowing the modvat benefit in respect of duty on aluminium foils and paper.
11. As regards the other issue viz. the denial of credit in respect of chemical 'P' and chemical 'S', we find that during the material period the complete description of the chemicals is not given. All the same, it is not disputed by the Department that these were subsequently elaborated with details of description of the chemicals and the Department has not objected to the extension of the modvat credit on these chemicals. If that be so, the statutory benefit cannot be denied merely on the ground of technicality. The question would have been different if these chemicals are not eligible for modvat credit or there is a mala fide intention in not declaring the chemicals with proper description. It is not disputed that these chemicals are directly going into the manufacture of biscuits and they have been so utilised even during the period, when it was not covered by a proper and elaborate description. While the appellants cannot claim the benefit as a matter of right without proper declaration, we also would like to observe that considering the facts and circumstances of this case, where the benefit in respect of the same goods has been subsequently extended, we would deem it proper to allow the modvat credit even during the period in dispute. Accordingly, we set aside the demand issued on this ground. Appeal is disposed of in the above terms.