Poly pouches used for liquid milk not excisable before filling, eligible for exemption

The Tribunal held that the poly pouches used for filling liquid milk were not marketable and excisable products before the milk was filled, as they were inseparable from the milk-filled product. They determined that the poly pouches did not emerge as identifiable products capable of being sold independently. The Tribunal also found that the pouches were eligible for exemption under Notification No. 132/86-C.E. as they were made from duty-paid films. The Vice President dissented, considering the pouches marketable and excisable, but the majority opinion upheld the original decision, rejecting the Revenue's appeal.

---

---

Issues Involved:
1. Marketability and excisability of poly pouches.
2. Applicability of Notification No. 132/86-C.E.
3. Classification under the Central Excise Tariff Act, 1985.

Issue 1: Marketability and Excisability of Poly Pouches

The Revenue appealed against the Order-in-Original dated 11-12-1987, arguing that the poly pouches used for filling liquid milk were marketable and thus excisable. They contended that these pouches were classifiable under sub-heading No. 3922.90 of the Central Excise Tariff Act, 1985, as "other articles of plastics." The Revenue argued that the poly pouches emerged as identifiable products from the poly films, which were the raw materials, and were capable of being bought and sold in the market.

The respondent countered that the poly pouches did not come into existence as a separate marketable product before the milk was filled. They described the process of manufacture, emphasizing that the forming, filling, and sealing of the pouches occurred in a continuous and automatic process, making the pouches inseparable from the milk-filled product.

The Tribunal held that no marketable and excisable product came into existence before the liquid milk was filled in the poly pouch. They noted that the process was automatic and simultaneous, and the poly pouches, as they emerged in the FFS machine, were not capable of being sold or marketed independently.

Issue 2: Applicability of Notification No. 132/86-C.E.

The respondent argued that even if the pouches were considered goods, they would be eligible for exemption under Notification No. 132/86-C.E., as the films used were duty-paid. The Revenue contended that this notification did not apply because it exempted articles made of plastics only if they were made out of specified goods on which Central Excise duty had already been paid.

The Tribunal found no infirmity in the impugned order regarding the applicability of Notification No. 132/86-C.E. They noted that the respondents were using duty-paid co-extruded poly films falling under Heading No. 3920.31, and the milk-filled poly pouch was manufactured out of such duty-paid films. The Tribunal referred to Trade Notice No. 27(MP)/plastics/2/1986, which clarified that exemption would be available even if intermediate products emerged during the manufacture of articles of plastics.

Issue 3: Classification under the Central Excise Tariff Act, 1985

The Revenue classified the poly pouches under sub-heading No. 3922.90, which covers "other articles of plastics." The respondent argued that no specific article of plastic came into existence during the manufacturing process.

The Tribunal agreed with the Additional Collector of Central Excise, Chandigarh, that no marketable excisable goods came into existence before the liquid milk was filled in the poly pouch. They concluded that the poly pouches, as they emerged in the FFS machine, were not identifiable products capable of being marketed independently.

Separate Judgment by Vice President

The Vice President dissented, stating that the process of making milk-filled poly packs showed that a poly pouch came into existence before the milk was filled. He argued that the pouch was marketable and excisable, as it was sold along with the milk in a sealed form. He classified the pouches under Heading 39.22 as "other articles of plastics" and held that the benefit of Notification No. 132/86 was not available because the pouches were made from materials falling under Heading 3910.31, not Headings 3901 to 39.04.

Conclusion

In view of the majority opinion, the Tribunal rejected the Department's appeal, upholding the Order-in-Original passed by the Additional Collector of Central Excise, Chandigarh.

---