TaxTMI 
TaxTMI 
TaxTMI 
1993 (12) TMI 124
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....ted in Rule 57A of the Central Excise Rules, 1944, and whether the benefit of MODVAT facility is available, only if the packaging material is used as such, or whether the benefit is available, also if the packaging material received has to undergo some conversion as also whether, the item that comes into existence on conversion of the packing material, is exempt from duty, if construed as a final product, would attract the provisions of Rule 57C of the Rules, or could that be construed as an intermediate product attracting the provisions of Rule 57D(2) of the Rules. 2. The undisputed factual position here, is, that the appellants are the manufacturers of Vanaspati (vegetable ghee or hydrogenated oil - as is commonly known), and market the same in Tin containers. They receive tin sheets as packaging material and in their own factory, convert them into container without the aid of power. The metal containers so made are used only for the purpose of packing their product, namely vanaspati and none else. The containers are classified under Tariff Heading 8312.19, but because they are manufactured without the aid of power, they are exempted from payment of excise duty. As the tin sheet....
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....to be construed in a broader sense, and that when the value of the packing material stands included in the assessable value of vanaspati, MODVAT Credit should not be denied. As is pleaded, the vanaspati being an edible product, the same is required to be marketed in containers alone. In his submission, like the plywood in tea chest, which is recognised as a packaging material but which by specific mention is excluded from availment of MODVAT Credit, the tin sheets are also recognisable as packaging material but do not fall within the excluded category. He has then relied upon the decisions of the East Regional Bench and West Regional Bench as indicated above. 4. It appears to have been argued on behalf of the Department that though tin sheets are recognisable as packaging material, when a distinct excisable item is brought in a different line of manufacture, the credit could be availed of only in relation to such excisable final product, and if that filial product is exempt from payment of duty, by virtue of Rule 57C of the Rules, availment of credit is not permissible, and that provisions of Rule 57D would not stand attracted. It is also contended that the tin container is not co....
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....e manufactured final product is required to be marketed in a container, packing becomes the integral part of the process of manufacture and processing on the packaging material has to be taken as a process incidental or ancillary to completion of the manufactured product. As opined by the said Bench, under the Excise Law, the term "manufacture" has a specific inclusive meaning to cover not only the process necessary for making of a product but also other processes incidental or ancillary to the completion of the product and as such, conversion of tin plates into tin containers in relation to the final product vanaspati, has to be construed only as a part of manufacture of the final product. Referring to the orders earlier passed by the same Bench as also by the East Regional Bench, the said Bench was inclined to allow the appeal against the orders of the authorities below which rejected the claim of the appellants to avail the MODVAT Credit, in relation to tin plates, holding that neither the provisions of Rule 57C, nor the provisions to Rule 57A, excluding some categories of inputs from availment of credit, could affect the claim of the appellants, but because of contrary view exp....
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....ther the tin plates can be considered as an input in production of vanaspati, which is the final product. In his submission input is the one which is used in or in relation to "manufacture" of final product, and obviously tin plates have no role to play in that regards. He has submitted that by virtue of specific provisions in Rule 57A, "the packaging material" has been allowed for the purpose of availment of credit for duty paid thereon, and where the inclusion is specific, that has to be read and interpreted strictly and only such of the material which is used directly in packing could be given the benefit, and that no benefit could be given, if, by any process on the packaging material, an item distinctly known as an excisable item, comes into existence, then, the same is a final product by itself and MODVAT Credit in relation to the inputs used in the same, could be availed of only for that particular final product, and if that final product is exempted from payment of duty, the provisions of Rule 57C would come into play. The Ld. JDR has also referred to the Board's (CBEC) Tariff Advice to the effect that the raw materials by themselves are not recognisable as packaging materi....
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....e exclusion provisions, which read thus: "(ii) packaging material 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 of any final product. (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 product under section 4 of the Act." It may also be observed, that, even if packaging material is taken as an input, the credit of duty paid thereon is not available if the final product is exempt from duty (Rule 57C) or if the input is removed as such, for home consumption, in which case, the same has to be removed on payment of duty, chargeable as if the input is manufactured in the factory, and such amount should not be less than the credit availed of thereon [Rules 57F(1) proviso]. At the same time, provision also exists that credit should not be denied or varied, on the ground, amongst others, if during the course of manufacture, some intermediate product which is exempt from excise duty comes into existence, (Rule 57D). 13. As already indicated hereinabove, the undisputed factual ....
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.... material as an input cannot be availed of, when the duty chargeable on the final product is at "specific rate" vide Section 3 of the Act, as that would be even contrary to the provisions contained in the rule itself. 15. Turning to the main issue. Rule 57A provides for availment of credit of duty on inputs used "in or in relation" to manufacture of final product. By specific inclusion clause, "packaging material" is treated as an input, packaging material, obviously, cannot be used in the manufacturing process of the final product. It can also not be used "in relation" to the manufacture of the final product, as its use is only after the final product come into existence. However, as could be seen from the definition of the word "manufacture" as given in Section 2(f) of the Act, it includes "any process incidental or ancillary to the completion of a manufactured product". The Supreme Court, have, in Collector v. Eastend Paper Industries -1989 (43) E.L.T. 201 (SC) while dealing with wrapping paper as a packaging material for an excisable product, held : "Anything required to make the goods marketable, must form part of manufacture and any raw material or any material used for the....
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....d. 18. When the "packaging material" is specified as an input and when only the "packages" could be used in packing the final product, it could, without any fear of contradiction be deducted that the framers of the scheme did envisage some type of further process and/or conversion of the raw material into a container. However, with the word "manufacture" having a special and specific meaning, in the Central Excises and Salt Act, 1944, as found in Section 2(f) of the Act, and with the interpretation given thereto by the Supreme Court in Re: Eastend Paper Industries (supra), any process undertaken on the packaging material has to be taken as the one "incidental or ancillary to completion of the manufactured product" and is deemed to be an activity done "in relation to" the manufacture of final product, even though, conversion of the 'packaging material' in package or container, is by a process separately and independently undertaken. The final product for that purpose is the one which is commercially expedient or in other words, marketable or marketed. 19. Vanaspati, in the instant case, is the commodity which is statutorily required to be marketed in packed condition, be it a tin ....
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.... by the Board is only in the nature of interpretation of the provisions of the Rule, and as is held by the Supreme Court, in Rajagopala Naidu v. State Transport Appellate Tribunal, AIR 1964 Supreme Court 1572, that any direction is issued which forges fetter on the exercise of powers by the quasi-judicial tribunal, then the same has to be ignored, and the same court have further held in Orient Paper Mills Ltd. v. Union of India - 1978 (2) E.L.T. J 345 (SC) that any direction issued by CBEC cannot bind the court or quasi-judicial authority. The rule position as already discussed hereinabove, goes contrary to the clarification given by the Board, which has, therefore, to be deemed to have no binding effect on the quasi-judicial authority. 23. The South Regional Bench, in Ponds (India) Ltd. v. Collector - 1988 (38) E.L.T. 351 (Tribunal) and in Collector v. Indo Swing Ltd. - 1992 (57) E.L.T. 606 (Tribunal), took the view contrary to the one expressed hereinabove. However, the Madras High Court, on reference made against the decision of South Regional Bench in Re: Ponds (India) Ltd. (supra), have, vide their judgment, in Ponds (India) Ltd. v. Collector - 1993 (63) E.L.T. 3 (Mad.), held....