Custom, Excise & Service Tax Tribunal
The Paper Products Ltd vs Commissioner Of Central Excise, ... on 12 November, 2013
IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL WEST ZONAL BENCH AT MUMBAI COURT NO. I Appeal No. E/21/2009 (Arising out of Order-in-Original No. 7 to 10/SHH/2008-09 dated 30.10.2008 passed by the Commissioner of Central Excise, Mumbai-III). For approval and signature: Honble Shri P.R. Chandrasekharan, Member (Technical) Honble Shri Anil Choudhary, Member (Judicial) ======================================================
1. Whether Press Reporters may be allowed to see : No the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982? 2. Whether it should be released under Rule 27 of the : Yes CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not? 3. Whether their Lordships wish to see the fair copy : Seen of the order? 4. Whether order is to be circulated to the Departmental : Yes authorities? ====================================================== The Paper Products Ltd. Appellant Vs. Commissioner of Central Excise, Mumbai-III Respondent Appearance: Shri Prakash Shah, Advocate for Appellant Shri Shobha Ram, Commissioner (AR) for Respondent CORAM: SHRI P.R. CHANDRASEKHARAN, MEMBER (TECHNICAL) SHRI ANIL CHOUDHARY, MEMBER (JUDICIAL) Date of Hearing: 12.11.2013 Date of Decision: 12.11.2013 ORDER NO. Per: Anil Choudhary
The appellant, M/s The Paper Products Ltd, holding Central Excise Registration and are engaged in manufacturing of packaging material falling under Chapter 39 and other final products, falling under Chapters 47, 48, 74, 76 and 84 of the Central Excise Tariff Act, 1985.
2. The appellant availed benefit of CENVAT Credit under Rule 3 of the Cenvat Credit Rules, 2004 of duty paid on the inputs/raw materials and capital goods used in or in relation to the manufacture of the above final products. The appellant utilized the CENVAT Credit for payment of duty at appropriate rate on the clearances of these final products. The brief manufacturing process is as follows: -
Manufacturing process:- inputs required: Plastic films, adhesives, inks, paper, aluminium foils, hot melts, specialty coatings etc. Laminated flexible packaging materials are supplied in the form of pouches, rolls cut to specific width, sheets cut to specific dimensions, sleeves to specific dimensions etc. The manufacturing process include rotogravure cylinder making by engraving process for required design or print as per selection of the buyers. Printing on plastic films papers, polyester films, BOPP films etc. using rotogravure cylinders on the printing machines. Initially such printed material is rewound on the rewinder to remove the defective material. Then the printed or unprinted material is mounted on the laminating machine where lamination is done by binding of two or more layers of same or different substrates with the help of bonding agent like adhesives. Such lamination can be either two ply lamination or three ply lamination and lamination process can be either by a) Extrusion Lamination or b) Adhesive Lamination. Then it passes through the heating chambers (dryers) where excess solvent is evaporated. At the other end of the machine laminates or laminated material is collected. The laminates are then tested for various defects and then taken for slitting process with the help of cutters into proper size in the form of coils. Such coils are packed with the help of stretch films and in cardboard or wooden boxes as per the quantity and type and then taken to shipping department for dispatch to customers. Pouches are made out of laminates on the pouch making machine in the different department of the factory.
2.1 That; from the copy of page nos. 488-489 from the book Plastics In Packaging published by Indian Institute Of Packaging and copy of page 74 of the book Wileys packaging Encyclopedia; which clearly shows the key properties-attention is drawn to WVTR and Oxygen permeability, machinability and printability. From the table it is evident that individual films would not meet the characteristics required for packing of most products. It is essential to combine more than one type of plastic films to achieve the desired properties to prevent/ingress/outgress of odour, moisture, sealability etc. Therefore when these different types of plastic films are combined together in the lamination process, they get a laminate neither the polyster film nor the BOPP film but a new product Laminate that has BOTH moisture and gas barrier properties. PET film by itself cannot enclose a product and seal to itself but when combined with BOPP, it becomes sealable, the essential operation for any packaging.
2.2 The choice of the material for printing and lamination will be determined primarily by the material to be packed its characteristics and the nature of protection to be ensured, the packing machines that are going to be used for final packing, cost of the laminate, workability and machinability etc. Similarly list of final products manufacture by them along with its tariff heading is given as under:-
SR. NO.
EXCISE CHAPTER GENERIC NAME OF EXCISE CHAPTER 1 3920.20.20 Printed or unprinted flexible film of PP Laminated, Supported or similarly combined with other materials.2
3920.69.12 Printed or unprinted flexible film of PET. Laminated, Supported or similarly combined with other materials.3
3920.99.92 Printed or unprinted flexible film of other plastics, Laminated, Supported or similarly combined with other materials.4
3921.90.24 Printed or unprinted flexible PVC Film metallised.5
3921.90.26 Printed or unprinted flexible PVC Film, laminated to PVC or plastic film.6
3921.90.94 Flexible, plastic films other than PVC film, 7 3921.90.96 Printed or unprinted flexible plastic films other than PVC film, laminated to another plastic film.
2.3 That their customers order Packaging Material in specific design and size and not films. They bought films from the suppliers. That; what they buy is known as films and what they manufacture and sell is known as packaging material.
2.4 That; the usage of films is to manufacture packaging material; whereas packaging material is used for packing commodities of the customer. Films are not capable of packaging commodities.
2.5 The appellant have been clearing the aforementioned packaging materials pursuant to manufacture on payment of excise duty under sub-heading 39.20 and 39.21 for about two decades. The products manufactured by the appellant firm were packing materials for their buyers. Some of these products are used by buyers as wrappers for their products and the rest would be used for making pouches for packing of the other products.
3.0 The Revenue pursuant to the decision of Hon'ble Supreme Court in the case of Metlex India Pvt. Ltd. Vs. Commissioner of Central Excise, New Delhi 2004 (165) ELT 120 (SC), wherein it was held that laminating/metallising of duty paid film does not amount to manufacture as the product is a film to start with and remains a film after lamination or metallization and no new and distinct product comes into existence. The show-cause notices were issued on 1.11.2007 and on another date calling upon the appellant to show cause as to why: -
(a) respective amounts of duty and Education cess as detailed in Annexure-A to each of the show-cause notices for the respective periods mentioned therein, on account of CENVAT credit taken in respect of inputs used in the manufacture of goods cleared for home consumption on payment of duty as detailed therein, should not be denied and recovered from the Appellants under Rule 14 of the CENVAT credit Rules, 2004 read with Section 11A of the Central Excise Act, 2004;
(b) respective amounts of duty and amount of Education cess as detailed in Annexure-B to the respective show-cause notices on account of CENVAT credit taken in respect of inputs used in the manufacture of goods cleared without payment of duty under Rule 19 or against CT. 1, CT.3, Annexure-I etc. during the respective periods mentioned therein should not be denied and recovered from them under Rule 14 of the CENVAT credit Rules, 2004 read with Section 11A of the Central Excise Act, 2004;
(c) interest at an appropriate rate on the amount mentioned in para (a) above should not be recovered under Rule 14 of the CENVAT credit Rules, 2004 read with Section 11AB of the Central Excise Act, 1944;
(d) penalty should not be imposed on the Appellants under Rule 15(1) of the CENVAT credit Rules, 2004;
(e) respective amounts of duty and Education cess paid by the Appellants as Central Excise duty and Education Cess respectively on finished goods cleared by the Appellants, though not required to be paid and recovered/collected from the buyers should not be treated as deposit with Central Government in terms of Section 11D of the Central Excise Act, 1944 and be transferred to Consumer Welfare Fund under the provisions of Section 11D of the Central Excise Act, 1944;
(f) interest at an appropriate on the amount as mentioned in para (e) above should not be recovered under Section 11DD of the Central Excise Act, 1944.
3.1 It was inter alia, alleged in show-cause notice that a. in the process of lamination, the product is a film to start with which remains a film after lamination and no new distinct product having a different identity or name come into existence.
b. the process of lamination carried out by the appellants to produce the goods falling under Chapter Headings 39206912, 39209992, 392119026 & 39219096 of CETA did not amount to manufacture and therefore the appellants could not be considered as a manufacturer as defined under Section 2(f) of the Central Excise Act, 1944 (Act) and consequently as per the provisions of Rule 3 (1) of CENVAT credit Rules, 2004 no CENVAT credit could be admissible on inputs and capital goods.
c. the appellants could not have availed CENVAT credit on inputs and capital goods and utilize such credit towards payment of duty on the clearance of laminated products, towards home consumption, for export under Rule 19 of Central Excise Rules 2002 (CER, 2002) or under CT-1 & CT-3, where such finished goods were produced by the process which did not amount to manufacture.
d. thus, the Appellants had contravened the provisions of Rule 3(1) of CENVAT credit Rules, 2004 read with Section 2(f) of the ACT by availing and utilizing in-admissible CENVAT credit during the period May 05 to Feb 08 which is alleged for recovery from the appellants under Rule 14 of CENVAT credit Rules, 2004 read with Section 11A of the ACT.
e. the appellants are required to pay interest under Rule 14 of CENVAT credit Rules, 2004 read with Section 11AB of the ACT.
f. A penalty under Rule 15(1) of CENVAT credit Rules, 2004 is also proposed.
4.0 The appellant replied to the show-cause notices and contested the same. The appellant mainly emphasized that the appellant has manufactured packaging materials from the films and other materials like adhesive etc. and other product as a distinct marketable commodity recognized as packing material in the market, which is not the same as film (inputs) which cannot be used as such for packing of various articles like cosmetics and food items. But, the learned Commissioner confirmed the demand relying upon the ruling of the Hon'ble Apex Court in the case of Metlex (India) Pvt. Ltd. (supra) and also relied upon the CBE&C Circular No. 93/75/86 CX-3 dated 9.10.1986 and also Circular No. 93/01/2006CX-3 dated 11.9.2007 and accordingly proposed demand of Rs.18,74,64,804/- was confirmed on account of CENVAT Credit taken on inputs which were used in the process of manufacture and cleared on payment of duty for home consumption or export. Further, amount of Rs.10,93,85,227/- was confirmed towards CENVAT Credit taken on inputs and were finally cleared without payment of duty for export under Rule 19(1) of the Central Excise Rules, 2002 or against CT-1 and CT-3. It was further ordered that an amount of Rs.18,74,64,804/- with Edu. Cess + HSE Cess paid by the assessee as duty on finished goods and recovered/collected from the buyers be treated as deposit with the Revenue and be transferred to Consumer Welfare Fund along with interest at appropriate rate on the above under Section 11A and Section 11DD and penalty of Rs.10 lakhs was also imposed under Rule 15(1) of the Cenvat Credit Rules, 2004.
Being aggrieved, the appellant is in appeal before this Tribunal.
4.1 It is contended by the appellant that in the case of Metlex (India) Ltd. (supra) before the Apex Court, there was no evidence on the point of manufacturing process and it was the Revenue, which contested that the process amounted to manufacture, whereas in the appellants case, the product manufactured by them is distinct and different from films on which activity of lamination and printing was undertaken and thereby, a new product packing material emerged which was usable for packing of food items etc. Further, in the case of Metlex (India) Ltd. (supra), there was no printing activity involved unlike the appellants case. It is also pointed out that the earlier ruling of the Hon'ble Supreme Court in the case of Laminated Packings (P) Ltd. Vs. CCE 1990 (49) ELT 326 (SC) was not considered by the Hon'ble Apex Court while considering the case of Metlex (India) Ltd. In the case of Laminated Packings (P) Ltd., the Hon'ble Supreme Court vide its order dated 6.8.1990 had held that polyethylene laminated kraft paper produced out of lamination of duty-paid kraft paper with polyethylene, were liable to excise duty as manufacture involved. Both the input and output falling under same tariff entry is not relevant for determining dutiability as both are differently identifiable goods in the market and hence, held that the same amounted to manufacture under the provisions of Section 2(f) of the Central Excise Act, 1944.
4.2 The appellant also relied upon the ruling of co-ordinate Bench of this Tribunal in the case of Markwell Paper Plast Pvt. Ltd. Vs. Commissioner of Central Excise, Noida 2012 (285) ELT 76 (Tri-Del). In similar facts and circumstances as involved in the present case, this Tribunal had distinguished the ruling in the case of Metlex (India) Pvt. Ltd. (supra) and had relied upon the earlier ruling of the Apex Court in the case of Laminated Packings (P) Ltd. (supra). The relevant paras are quoted herein for ready reference: -
18. We have considered the rival contentions and perused the record as well as the judgment relied upon by respective parties. On reading of the respective order-in-originals, it is evident that the Commissioner (Adjudication) has based his finding on the judgment of Supreme Court in the matter of Metlex (I) Pvt. Ltd. (supra). Therefore, in order to appreciate the contentions raised by the parties, it would be useful to have a look on the relevant observations of the Supreme Court in the judgment which are reproduced thus :-
15. In this case the Appellants purchase duty paid film. They merely laminate or metallise it. The product is a film to start with and remains a film after process of lamination or metallisation. Thus there is no new distinct product which has come into existence and it would have to be concluded that there is no manufacture.
16. It was however submitted that the case has proceeded on the?admitted footing that there was a manufacture. It was submitted that the matter must be remitted back to decide whether there is manufacture. It was submitted that this aspect will have to be decided in terms of Note 12 to Chapter 39 and after looking at the process adopted by the Appellants. It was submitted that under the present Tariff there are separate sub-heading and thus after examining the process of the Appellants it may be possible to contend that a new and distinct product has come into existence.
17. We are unable to accept this submission. The question is?whether an individual and distinct product has come into existence. It is settled law that the burden is on the department to prove that a new and distinct product has come into existence. The Appellants, in reply to the Show Cause Notice, took up the contention that there was no manufacture. If the Department still wanted to contend that manufacture had been undertaken, the Department had to prove it by cogent evidence. The Tribunal was clearly in error in seeking to cast the burden on the Appellants to show that there was no process of manufacture.
19. In para 15 of? the judgment, the Supreme Court has observed that mere lamination or metallization of a film does not bring about a new distinct product as such said process cannot be termed as manufacture. In para 16 of the judgment, the Supreme Court has referred to the plea of the department urging for remand of the case back for decision whether or not there was manufacture. In para 17, the Supreme Court rejected the said plea of the department observing that if the department wanted to contend that the assessee has undertaken manufacture, the department was required to prove it by a cogent evidence and that the Tribunal was clearly in error in seeking to cast the burden on the assessee to show that there was no process of manufacture. From this observations, it is clear that the appeal of the assessee was allowed by the Supreme Court on facts because of the failure of the department to establish that the goods in question came into existence through a manufacturing process. That being the case in our considered view the judgment of Supreme Court in Metlex (I) Pvt. Ltd. cannot be applied universally de hors the facts. Whenever the question arises whether or not the product in question came into being from a process of manufacture the adjudicating authority is required to refer to the facts of the case to come to the conclusion as to whether the process amounted to manufacture or not. In the instant case the Commissioner (Appeals) has not cared to look into the process through which the finished goods were cleared by the manufacturing assessees emerge out of the process of manufacture.
20. The manufacturing appellants have explained the process of production of their final products as follows :-
(i) Printing of bare and metalised polyester film which is purchased from the market on payment of duty;
(ii) Lamination of said printed film either in two layers or three layers with the help of adhesive or other chemical.
21. This fact is not refuted by the department. Thus, it is clear that the appellant after purchasing the bare polyester/metalised film on payment of duty, first subject those film to printing as per the requirement of the customer and thereafter those films are laminated either in two layers or three layers. In our considered view the aforesaid process changes the character of the bare polyester film (inputs) in terms of its user as also the thickness and lamination. Therefore, this process falls within the definition of manufacture as defined under Section 2(f) of the Central Excise Act, 1944. In our aforesaid view we are supported by the judgment of the Supreme Court in the matter of Laminated Packaging (P) Ltd. (supra) wherein the Supreme Court has held that polyethylene laminated kraft paper produced out of lamination on duty paid kraft paper with polyethylene amounts to manufacture. The relevant observations of Supreme Court are reproduced thus :-
4. After this impugned Act was passed, the same was challenged before the Bombay High Court by several writ petitions. Writ Petition No. 623 of 1979 along with others were disposed of by the Bombay High Court by judgment delivered by the division bench on 16/17th June, 1983 in the case of New Shakti Dye works Pvt. Ltd. & Mahalakshmi Dyeing and Printing Works v. Union of India & Anr. [1983 E.L.T. 1736 (Bom.)]. By the said judgment, the Bombay High Court disposed of 24 writ petitions as the question involved in all those petitions was identical. In that case the constitutional validity of the impugned Act as well as the levy of duty on certain goods identical to the present goods involved in this application under Article 32 of the Constitution was involved. The Bombay High Court dismissed the said writ petitions. We will refer to the said decision later. We may, however, state that we are in respectful agreement with the conclusions as well as the reasoning of the decision of the Bombay High Court in the said petitions. Special leave to appeal to this Court has been granted from the said decision in the case of New Shakti Dye Pvt. Ltd. [1983 E.L.T. 1736 (Bom)].
22. The result of above discussion is that the orders of respective Commissioners are not sustainable in law.
23. Even otherwise if for the sake of argument it is assumed that the final products cleared by the manufacturing appellants emerged from a process not amounting to manufacture then also we find it difficult to sustain the impugned order for following reason :-
Undisputedly, the appellants used duty paid inputs for the production of their final product which was cleared to the customers on payment of excise duty. Admittedly, the department accepted the excise duty on the final product without any protest nor the appellants were informed that their final products was not subject to excise duty as it emerged from the process not amounting to manufacture as defined under Section 2(f) of the Central Excise Act. Learned Counsel for the respondent department has tried to justify the impugned order disallowing the Cenvat credit availed by the appellant on the inputs on the plea that the final product has not emerged from the process which could be termed as manufactured. Such an argument, in our view cannot be sustained as it is against the tenets of equity and justice. The department having accepted the excise duty on the final product cannot be permitted to deny Cenvat credit on the inputs used for the manufacture of the final product on such a technical plea. If such an argument is allowed to sustain it would negate the entire object of the Cenvat credit scheme which has been put in place with a view to protect the assessee from double taxation. Thus, on this count also, the impugned orders are not sustainable.
24. In view of the? above, we find ourselves unable to sustain the impugned orders which are accordingly set aside. 4.3 It was further emphasized by the appellant that as a result of production on conversion of one film into another, a new product known to the market packing materials emerges and accordingly, it is explicit that the packing materials manufactured by them amount to manufacture and accordingly prays for setting aside the impugned order and allow the appeal with consequential relief.
5. The learned Commissioner (AR) appearing for the Revenue reiterates the findings of the impugned order and relies upon the ruling of the Metlex (India) Pvt. Ltd. (supra) as well as the CBE&C Circular and Government of Indias intimation, mentioned herein before and prays for upholding the impugned order.
6. Having considered the rival contentions, we are of the view that the process/conversion undertaken by the appellant amounts to manufacture in the light of ruling of the co-ordinate Bench decision of this Tribunal in the case of Markwell Paper Plast Pvt. Ltd. (supra). Thus, the appeal is allowed with consequential relief, if any.
(Operative portion of the order pronounced in Court)
(P.R. Chandrasekharan) (Anil Choudhary)
Member (Technical) Member (Judicial)
Sinha
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