Proforma credit on packing paper upheld where minimum marketable packing is incidental to manufacture and appellate grounds may be entertained

Duty paid on wrapping or packing paper used to pack other varieties of paper was treated as eligible for proforma credit under Rule 56A because normal minimum packing required to make goods marketable, or packing used for convenient distribution, may form part of a process incidental or ancillary to completion of manufacture. The Tribunal also held that the Appellate Collector could entertain and decide an additional ground for proforma credit even though it had not been specifically urged before the Assistant Collector, and was not bound to remand the matter for that reason. On both issues, the Revenue's challenge failed.

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Issues: (i) Whether the duty paid on wrapping or packing paper used for packing other varieties of paper was eligible for proforma credit under Rule 56A of the Central Excise Rules. (ii) Whether the Appellate Collector was competent to decide the plea of proforma credit though it had not been specifically urged before the Assistant Collector.

Issue (i): Whether the duty paid on wrapping or packing paper used for packing other varieties of paper was eligible for proforma credit under Rule 56A of the Central Excise Rules.

Analysis: The relevant inquiry was whether the packing material was used in a process incidental or ancillary to the completion of the manufactured product, or for the convenient distribution of the finished product. The Tribunal noted the view taken in prior decisions that normal minimum packing needed to make goods marketable may form part of the completion process, and it also relied on the later High Court decision holding that wrapper paper used for wrapping other paper could qualify for set-off. The Tribunal distinguished authorities dealing with post-manufacturing expenses and packing charges for valuation, and held that the present case fell within Rule 56A.

Conclusion: The credit under Rule 56A was admissible and this issue was decided in favour of the assessee.

Issue (ii): Whether the Appellate Collector was competent to decide the plea of proforma credit though it had not been specifically urged before the Assistant Collector.

Analysis: The Tribunal held that the Appellate Collector had authority to entertain additional grounds for good reasons and was not bound to remand the matter merely because the plea had not been raised earlier. Since the appellate authority had chosen to decide the issue, no fault could be found with that course.

Conclusion: The appellate authority was competent to decide the new ground, and this issue was also decided against the Revenue.

Final Conclusion: The Tribunal sustained the allowance of proforma credit on packing or wrapping paper and rejected the Revenue's challenge, with the appeal failing in full.

Ratio Decidendi: Normal minimum packing or wrapping used to make a manufactured product marketable or for its convenient distribution may fall within the scope of a process incidental or ancillary to completion, so that duty paid on such packing material can qualify for proforma credit where the rule so permits.

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