Customs, Excise and Gold Tribunal - Delhi
Union Carbide (I) Ltd. vs Collector Of C. Ex. on 11 December, 1987
Equivalent citations: 1989(43)ELT286(TRI-DEL)
ORDER H.R. Syiem, Member (T)
1. This is an appeal by M/s. Union Carbide against the order of the Collector of Central Excise (Appeals) No. 245/83(M), dated 22-7-1983 passed by the Collector of Central Excise (Appeals), Madras. M/s. Union Carbide used cello poly films to pack batteries in a manner they call strips packing. The film is used in two layers between which the batteries are inserted; the two layers of film are then bonded together, with the batteries sealed inside. This is said to be the best packing for the battery as it insulates it from atmospheric pollution, moisture, air, dust etc. and keeps it in condition for a much longer time. According to the learned counsel Mr. Lakshmi Kumaran, without this packing the battery cannot reach its customers, and therefore, the battery is not completed until it is packed in strip packing of cello poly film. Hence, he said they are entitled to the exemption under the notification No. 201/79-CE which allows exemption for all excisable goods, "in the manufacture of which any goods falling under item 68 of the first schedule of the Central Excises and Salt Act 1944 (set off 1944) (hereinafter referred as the inputs) have been used, from so much of the duty of excise leviable thereon as is equivalent to the duty of excise already paid on the inputs". By a notification dated 28-2-1982, some changes were brought about in this notification so that the inputs were described as being used as raw materials and component parts. The substance of the exemption, however, remains the same; that is to say, the exemption is only to the extent of the duty already paid on the inputs.
2. The learned counsel argued that since the batteries were incapable of being cleared or of reaching the market without packing in the strips, the cello poly film must be accepted as an input because it goes directly into the production and clearance of the finished product, the battery. Even after the amendment in February 82, the learned counsel said, the film would qualify to be called a raw material and a component part of the battery.
3. To support his case and his arguments, the learned counsel quoted a number of judgments, namely:
(1) 1965 Sales Tax Cases Vol. 16, page 563 re : JK Cotton Spinning. (2) 1965 Vol. 60 STC 1301 (3) 1987 Vol. 13 ECC page T-3318 (4) 1987 Vol. 30 ELT 850 (5) 1987 Vol. II-ECR 348
4. The learned counsel pointed out that the notification 201/79-CE is a set off notification. He quoted two further judgments :
(1) 1987 Vol. 10 ECR 582 (2) 1984 Vol. 18 ELT 88
5. He ended by saying that he would like to make an alternative plea. If notification 201/79-CE does not find favour with the bench, he should be allowed proforma credit under Rule 56A of the Central Excise Rules as under this scheme they can get adequate compensation for the duty paid on the raw material.
6. The learned counsel for the department began by pointing out that the notification 201/79-CE was a self contained notification and its words were different from 56A scheme. Furthermore, cello poly film has not been listed in 56A. It cannot be said that a film used for packing becomes an input or a raw material. He pointed to the words "in the manufacture of which" which occur in notification 201/79-CE. They mean that the manufacture must be made with these films as inputs and a necessary ingredient of the finished product. But the film was not used in the manufacture of the battery. The battery came out and took shape independently of the film even though the film immediately received it to wrap and to secure it. Even if the process involved immediate packing in the film of the batteries, it would not still mean using the film as input. The batteries were ready and finished when they were put between the two layers of film. He said packing is not a part of manufacture as per judgment 1985 (27) ELT page 901 re : Titagarh Paper Mill.
7. The learned SDR read Section 2(0 of the Central Excises and Salt Act, 1944. Clauses (iii) and (iv) refer to certain goods in respect of which certain further processing like labelling, repacking or sizing, winding, reeling etc. are defined as processes included in the process of manufacture. This is not the case with the batteries; their packing does not figure as a process incidental or ancilliary to the completion of the batteries. He quoted a number of decisions namely:
(1) 1978 ELT J 18 EID Parry (2) 1979 ELT J 457 Orissa Industries (3) Order No. 6/87-C (4) Order No. 97/87-C (5) 1979 ELTJ 468 (6) 1985:22 ELT 810
8. The film does not enter the goods and does not add or enhance their character and therefore, in the interpretation given by the Supreme Court in 1983 ELT 1896: Bombay Tyres, the film cannot form part of the battery, and hence it is not an input.
9. The learned counsel for M/s. Union Carbide reiterated his contention that the batteries cannot be sold without the pack. This, however, is a mistaken notion. The battery can be sold without the film pack and batteries are frequently sold and can be bought without the film pack. Some companies wrap them in such film wrappers as they provide secure protection against loss of current, damage etc. but it will not be correct to say that the batteries cannot be sold without the film pack. As I have said batteries can be bought without the film pack, and in fact batteries are still sold without any film pack.
10. It would be a mistake in my opinion to see cello poly film as an input used in a manufacture of a battery or as a raw material or component part. To be an input, a material must be used and consumed in the process of manufacture of the finished product. It is not, of course, necessary for the input or raw material to form part of the finished product when it finality comes out at the end of the manufacturing process; but as long as the input or raw material is used up necessarily in the process that carries forward and furthers the process of bringing out and completing the manufactured product, I shall hold that the article or raw material was an input or a raw material used in the manufacture of the finished product. In science and technology inputs are understood as "those resources and other environmental factors converted by a system" [McGraw Hill Dictionary for Scientific and Technical Terms]. A raw material is "a crude, unprocessed or partially processed material used as foodstock for a processing operation : for example, crude petroleum is the raw material from which naphtha is obtained; naphtha is the raw material from which benzene - toluene - xylene aromatics are ob-tained"(ibid).
11. It is easy to see from the above descriptions that technologically and scientifically inputs and raw materials are always understood to go into the product in the manufacture of which they are used. A substance cannot be an input or a raw material if it dotes not directly enter, react, contribute or in some way promote the creation of the finished product. To merely protect or secure the finished product is never the role of the input or the raw material. In this respect we can learn much from the judgment of the Supreme Court in JK Cotton Spinning Mills quoted by the learned counsel for M/s. Union Carbide.
12. Here is a sentence that in my opinion provides the complete answer :
Where any particular process is so integrally connected with the ultimate production of goods that but for that process, manufacture or processing of goods would be commercially inexpedient, goods required in that process would, in our judgment, fall within the expression "in the manufacture of goods".
13. The Supreme Court also observed at page 569 : the expression "in the manufacture" takes in within its compass all processes which are directly related to the actual production.
14. The material must be used in the manufacture of the finished product even if such use may not be direct; but the use must be directly related to the actual production. It is difficult to say that the cello poly film was used in a way that was directly related to the actual production of the battery. The film was not used even indirectly in such production; it merely served to hold and contain the finished batteries to protect them from the elements. In order to use the battery one must tear up and throw away the film. This would not be possible if the film had in some way been used in the production of the batteries; since in that case it would form a part of the battery so that it would not be possible to discard it in order to utilise the batteries.
15. In my opinion, it would not make any difference to the above proposition whether the time was before or after the amendment of the notification in February 82. The cello poly film is neither an input nor a raw material, nor a component, used in the manufacture of the battery and, therefore, its use would not entitle the battery to exemption under notification 201/79-CE. I, therefore, reject this appeal.
16. The learned Mr. Lakshmi Kumaran pleaded that he should be given the facility of Rule 56A credit. However, I would not be able to do anything under this request as I need to know all details about the request and whether the conditions under Rule 56A have been met and fulfilled, and so on and so forth. There are many things that an assessee must satisfy before Rule 56A credit can be extended. I, therefore, leave it to the assessees to present their claim under Rule 56A to the proper authority, who will, I have no doubt, consider and pass appropriate orders as the case warrants.