ORDER
R. Jayaraman, Member (J)
1. This is an appeal against the order-in-original No. 92/MP/91 dated 28.10.1991 passed by the Collector of Central Excise, Baroda confirming the demand amounting to Rs. 6,44,906/- under Rule 57I read with proviso to Section 11A(1) of the Central Excises and Salt Act, 1944 and imposing a penalty of Rs. 50,000/-on the appellants.
2. The appellants herein are manufacturers of Vanaspathi (vegetable ghee) and they received Tin Sheets as packaging materials, in respect of which Modvat Credit was taken. It is however alleged that Modvat Credit of duty paid on Tinned sheets is not eligible to them because such tinned sheets are converted into metal containers without the aid of power in their plant and then only are used for packing vegetable ghee and hence such tinned sheets are used in the manufacture of metal containers classified under Tariff head 8312.19 but exempted, because they are manufactured without the aid of power. It is also alleged that they have-not revealed the manufacture of metal containers without use of power by filing classification list. Since tinned sheets are utilised in bringing out a distinct excisable product, which is exempted and only tin containers are used for packaging vegetable ghee, modvat credit taken in respect of tinned sheets is not admissible towards the payment of duty payable on vegetable ghee. In the adjudication proceedings held by the Collector, the impugned order was passed confirming the demand and imposing penalty as indicated above. The present appeal is against the above order.
2A. Shri Willingdon Christian, the ld. advocate has stated that though he has an excellent case on grounds of time bar of the demand, he would request for a decision on merits and if we are not convinced of their case on merits, he would submit his argument in detail on the ground of time bar.
3. Main thrust of the arguments with regard to the eligibility of Modvat Credit can be summed up as below:
(i) Tinned sheet is a packaging material clearly identifiable as a material for packaging. It cannot be used as such for obvious reasons and hence has to be converted into a container. He does not dispute that such conversion brings into existence a metal container classifiable under 8312.19. But on that ground it cannot be held that what is brought in, under Modvat Credit is not a packaging material.
(ii) The question to be raised is whether it is a packaging material and if so, credit is to be allowed, irrespective of whether it is converted or subjected to any process within the factory for rendering the packaging material fit for use. The Rule does not stipulate extension of Modvat Credit only in respect of ‘ready to use’ packaging material; nor does it restrict only to container, receptacle, boxes or packages. The word used in the Rule is ‘packaging material’. Hence the test to be applied is whether the material brought in is ‘packaging material’ as is known in trade parlance and it is used for packaging purposes in respect of the declared final product.
(iii) In the case of any packing material, certain processes or conversions are called for and they cannot be used as such. Only in the case of boxes, containers, cartons, they can be used as such. If the object of Modvat scheme is to restrict the Modvat benefit only to such ready to use containers/cartons/boxes etc. the term used would have been ‘ready to use’ packaging material. He has also pointed out that dressing material is a fabric, identifiable as meant for preparation of dresses, as against ‘dress’, which is a prepared item out of dress material.
(iv) Though Tin container does not come at the intermediate stage of manufacture of vanaspati, it occurs in the process of conversion of tin sheets for making it suitable for packing vegetable ghee. Since the value of packing is included in the value of vegetable ghee and packing is a process necessary for completing the manufacture of vegetable ghee, modvat credit cannot be denied, merely because, tin containers are exempted. In other words, he pleaded that ‘intermediate product’ is to be construed in a broader sense and cannot be given restrictive meaning.
(v) Tin sheets are not raw material for packaging material. It is a packaging material b; itself. Plywood for Tea chest is recognised as a packaging material in the rule itself but i: specifically excluded from the scope of Modvat benefit. Like that there is no exclusion for tin sheets.
(vi) He seeks to rely on the decisions of W.R.B. in the cases of FDC Ltd. 1992 (32) ECR 254, Parle Products (P) Ltd. 1991 (36) ECR 614. Apart from these two decisions, there is a direct judgment on the eligibility of Modvat Credit for tin plates/sheets in the cast decided by East Regional Bench–Rasoi Ltd. v. Collector of Central Excise, Calcutta 1990 (30) ECR 13.
4. Mrs. Lipika, the ld. S.D.R. has argued against the contentions of the ld. advocate, by pleading as below:
(i) Tin plate/sheet is no doubt a packaging material but when it is manufactured into a distinct excisable product namely ‘tin container’, which is a different line of manufacture from that of vegetable ghee, duty paid on tin sheets can be availed of as credit only towards the payment of duty on the final product–namely tin containers. Here, tin container is exempted because it is manufactured without the aid of power.
(ii) Manufacture of tin container is an independent operation and it is not in the stream of manufacture of vegetable ghee and hence tin container cannot be called intermediate product but final product in the independent line of manufacture. Since the final product is exempted they cannot avail benefit of Rule 57D, but would be hit by the provision of Rule 57C.
(iii) Packing is no doubt a process incidental to the completion of manufacture of vegetable ghee. Here tin sheets are independently converted into tin containers which is a distinct product, under Central Excise Tariff. Even in the case of Rasoi Ltd. (supra) East Regional Bench have not accepted the argument that metal containers are intermediate product in the manufacture of vegetable ghee. She referred to para (8) of the aforesaid order of the East Regional Bench.
(iv) East Regional Bench and West Regional Bench have gone only by the term ‘packaging material’ in Rule 57A but did not consider the eligibility of such packaging materials being converted into distinct excisable containers.
(v) Modvat scheme is to be construed as a whole in the context of other provisions of the Rules. Hence Rule 57A cannot be read in isolation but to be construed and applied in the context of provisions of Rule 57C and 57D as well. When metal container is not an intermediate product and it is a final product, which is exempted, provisions of Rule 57C would be attracted. Hence Modvat is not admissible in such a case.
(vi) She sought to rely on the decision of the South Regional Bench in the case of Ponds India Ltd. and in the case of Indo Swing Ltd. reported in 1992 (19) ETR 372 : 1992 (57) ELT 506. She particularly referred to para 4 of the above decision to point out that South Regional Bench have specifically considered the issue in the context of Rule 57D and has held that even if tissue paper is treated as packaging material, since it is used only for preparation of wax paper, which is a final product and not intermediate product, benefit of Rule 57D(2) cannot be available.
(vii) She has pleaded that in any case, when there are conflicting views as noticed above, the issue, on merits, cannot be decided without the issue_ being decided by a larger Bench, even if the ratio of decision in Rasoi Ltd. (Supra) is no doubt directly on the issue, favouring the appellants.
5. After hearing both the sides on merits of eligibility of Modvat Credit for tin sheets received as packaging material we identify the following issues, which are required to be considered.
(i) Whether tin sheets are packaging materials as per Rule 57A and if so whether modvat benefit is eligible, only if they are used as such and not after conversion into tin container and whether Rule 57A bars such conversion.
(ii) Whether tin containers could be construed as intermediate product for purposes of Rule 57D(2) and hence notwithstanding their exemption, whether Modvat Credit of duty paid on Tin Sheets is available to the final product namely vegetable ghee or whether tin container is a final product itself, being exempted and hence hit by the provisions of Rule 57C.
(iii) If tin container is held as a final product exempted, what is the significance of allowing modvat credit to all packaging materials, whose cost is included in the assessable value of the packaged final product, under the explanation to Rule 57A?
(iv) Whether there is a conflict in the views of the Regional Benches, calling for constituting a larger Bench?
6.1 We propose to consider these issues seriatim.
Regarding issue at (i) above:–Rule 57A sets out the applicability of Modvat benefit in respect of duty paid on inputs used in or in relation to the manufacture of the final products. Both inputs and final products are to be specified in the Notification issued under this Rule and Modvat benefit is available subject to the provisions of Chapter 5AA and the conditions and restrictions that may be specified in the Notification issued under that Rule. By virtue of the explanation to that Rule, ‘inputs’ includes those which are manufactured and used within the factory of production in or in relation to the manufacture of the final products and paints and packaging materials. ‘Inputs’ does not include machinery, machines, plant etc. used for producing or processing any goods and packaging materials, whose cost is not included in the assessable value of the final product either on account of any exemption, or otherwise, cylinders for packing of gases, plywood for teachests, and bags or sacks made out of fabrics woven from strips or tapes of plastics.
Any input claiming Modvat benefit must first pass through the test of satisfying the provisions of Rule 57A. It should be an item used in or in relation to the manufacture of final product and should not fall in the excluded category. The item and the final product where it is used, should have been notified under the Rule 57A. Judged by this test, in the case, ‘Tin plate’ should be a packaging material. Because, inclusive definition of input refers to ‘packaging material’. Going by the definition of ‘material’ given in Chambers English Dictionary, it inter alia refers to that out of which anything is or may be made and that which may be made use of for any purpose. The term ‘packaging’ as per the above dictionary refers inter alia to ‘anything used to package the goods’. Viewed against these meanings of the terms ‘material’, and ‘packaging’, it cannot be the intention of the policy makers, while using the term ‘packaging material’ to confine the benefit only to “ready to use” packing materials such as boxes, cartons, containers, pouches, bags and the like. Hence items like varieties of paper normally meant for packing, Aluminium foil, cellophane, plywood for tea chests, Hessian or jute fabrics, tinplates/sheets, which are normally used for packaging purposes and also identifiable as packing materials, would also come under the purview of packaging materials. Since the term is of wider import, even the ready to use packaging products like bottles, cartons, boxes, containers etc. would also get covered under this term. Once it is satisfied that the item is identifiable as a packaging material by its normal and commercial use and the purpose for which it is brought, is for packaging, it comes under the scope of ‘input’ under Rule 57A unless that is specifically excluded. Then we are to look into whether such a packaging material falls under the excluded category–namely whether the cost of this packaging material is not included in the assessable value, of it is a specifically excluded item such as gas cylinders or plywood for tea chests. If the packaging material is not so excluded, it passes through the test laid down under Rule 57A. Applying this test, we find that Tin plate, is commercially and normally used for packaging purposes and has been specifically brought for packaging of vegetable ghee. It is notified under the Modvat scheme and is not falling in the excluded category of packing material. Hence Modvat is eligible for the Tin plates/sheets, under Rule 57A.
Now the question arises whether such packaging materials are to be used as such. In many situations, packaging materials may have to be converted so as to render them ready for packing the final product and cannot be used as such. A flattened container may have to be converted into a carton. Tin plate may have to be converted into a con-miner. Aluminium foil may have tc be subject to lamination with paper, printed and made into strips or sachets. Some of these conversions may be done in the same factory or outside on job work basis. Some of the processes undertaken on the packaging materials may bring out a product distinctively known by names such as tin container, bag, sachets, and such converted products may be excisable or exempted. Rule 57A allowing credit for all packaging materials does not perse bar such conversions. But we are to look into the other provisions of Chapter VAA and the conditions prescribed in the Modvat Notification for determining this issue.
6.2 This is what we propose to do, while considering the issues at (ii) & (iii) above.
Re:Issue at (ii) and (iii)
Rule 57C lays down that if the final product manufactured out of input is exempted or chargeable to ‘Nil’ rate of duty, Modvat credit in respect of duty on inputs cannot be availed of. Rule 57D(2) lays down that credit of duty allowed in respect of any inputs shall not be varied on the ground that any intermediate products have come into existence during the course of manufacture of the final product and that such intermediate products are exempt from duty or chargeable to ‘Nil’ rate of duty, provided that such intermediate products are used within the factory of production in the manufacture of final product, on which duty of excise is leviable and the said intermediate product is also specified as input or final product under the Notification issued under Rule 57A.
Under Rule 57F(2), a manufacturer may, with the permission of the Collector and subject to such conditions as prescribed, remove the inputs as such or after partial processing, in the factory, outside, for purpose of test, repairing, reconditioning and such other operation necessary for the manufacture of the final product or for purpose of manufacture of intermediate product necessary for the manufacture of the final product. The one important condition is that the inputs so removed outside should be returned to the factory of origin after conversion or manufacture so that they can be utilised in the manufacture of final product.
6.3 The term ‘inputs’, ‘final products’, ‘intermediate products’ are relative to the nature of operations carried out by the different manufacturers and may vary from one manufacturing unit to another. What is an intermediate for one unit may be a final product in the other unit. Hence for applying the Rules aforesaid, it would appear that one has to necessarily take into account the meaning of ‘manufacture’ as laid down in Section 2(1) of the Central Excise Act. According to that section ‘manufacture’ includes any process incidental or ancillary to the completion of manufactured product and which is specified in relation to any goods specified in the section or chapter notes of the Schedule to the Central Excise Tariff Act as amounting to manufacture. Unless the goods are marketable in naked condition without packing, packing is necessarily a process incidental or ancillary to the completion of the manufactured product. In the case of consumer items, they are mostly required to be marketed in packed condition. Now coming to the specific case before us, vegetable ghee, being an edible item, is required to be packed in sealed containers as per the statutory regulations. Hence, packing is an integral process of manufacture of the final product. When Rule 57A provides credit for packaging material and defines it as an input, it recognises that it cannot go in the main stream of manufacture of final product. It has to be brought independently for packaging the final product.
Hence, if such packaging materials cannot be used as such and need to be converted to meet the requirement of packaging the final product, such process goes as part of the manufacturing process of final product, since manufacture of final product is not complete without such packing.
6.4 Hence, viewed in the aforesaid context, if a packaging material is received for packing the final product under Modvat scheme, it becomes an input as per Rule 57A. Since packaging material, by their nature, can be put to use only after the final product comes into existence, it can, on no occasion, be an intermediate product in the stream of making of the final product. But under the excise law the term “manufacturer” has a specific inclusive meaning to cover not only the processes necessary for making of the product but also other processes incidental or ancillary to the completion of the product.
In all the aforesaid rules, which we have brought above, the underlying idea is to see that inputs are to be used in or in relation to the manufacture of the final product declared, which is dutiable. We have underscored the term ‘manufacture’ occurring in these rules while bringing out the essence of these rules in the previous paras only to emphasize, on this. Thus, in our view, if the manufacturer of say ‘vegetable ghee’ declares ‘tinplate’ as packaging material for packing vegetable ghee being the final product, conversion of the tinplate into a container either in his own factory or outside under Rule 57F(2), such conversion, though bringing into existence a product namely container, would have to be construed only as part of manufacture of vegetable ghee, because of the significance of the term ‘manufacture’ given in the excise law. Viewed in this context, there can be no conflict of Rule 57D(2) or Rule 57F(2) with the extension of Modvat benefit to such packaging materials specified under Rule 57A.
6.5 If on the other hand, interpretation is sought to be placed on the meaning of intermediate product as being restricted only to that occurring in the intermediate stage of making the product per se and not to its emergence after packing, we are afraid that many of the packaging materials, whose cost is included in the value of the final product and is sought to be brought under Modvat scheme by the manufacturer of the final products, would invariably attract the provisions of Rule 57C and the object of extending this benefit to packaging materials would get frustrated. If we are to take a harmonious construction of all the aforesaid Rules, conclusion is inescapable that the scheme of Modvat permits such conversion either within the factory or outside on job work basis and such converted products, occurring in the course of packaging the final product are to be construed as part of the manufacture of the final product, the term ‘manufacture’ being given its meaning as per excise law. This is the consideration (though not so elaborately discussed), which were weighing with us in our earlier orders in Parle Products and FDC Ltd. (cited supra).
6.6. This also appears to be the view held by the Dept. till the view was changed, on a clarification reported to have been issued by the Board reproduced in 1991 (32) ECR part II page 25C. We have also considered the plea advanced by the Deptt.’s representation based on this clarification of the Board in our order in FDC Ltd. 1992 (39) ECR 254 and could not find acceptance of the same. We are of the view and so also East Regional Bench vide its decision in the case of Rasoi 1990 (30) ECR 13 (CEGAT ERB) that if the item per se is identifiable as packaging material specified in Rule 57A and is brought for packing final products, Modvat credit cannot be denied, merely because of its conversion so as to render the material ready for packing the final products. If it is construed that such conversion brought into existence an independent product and is sought to be divorced from the stream of manufacture of the final product, by not adopting the definition of ‘manufacture’ specified in the excise law, the significance of extension of Modvat benefit to packaging materials would be lost in many of the cases, when such conversion may result in bringing into existence an exempted packaging material. As we have above observed, the term ‘packaging material’ brings within its scope not only ‘ready to use packing materials’ but also such other materials, which are known for packing purposes and also identifiable as such. Hence when such a packing material in the form of plate or sheet is converted into a container or bag etc. as part of the process of packaging the final products, it would appear to us that it occurs in the course of manufacture of the final product packed, because of the fact the manufacturer of final product is not complete without packing and such process is covered by the definition of manufacture in the excise law.
6.7. We also looked at issue (iii) from another angle. The policy makers appear to have deliberately used the word ‘packaging material’ instead of ‘packing container’ or ‘ready to use packaging articles’, while including it as an input under Rule 57A. Hence when once such a packaging material is received as an input for packing the final product, benefit of provisions of Rule 57D or Rule 57F(2) would be available to this input like other inputs. There is also no dispute that Rule 57C won’t stand attracted in the case of other inputs passing through an intermediate exempted stage and Rule 57(D)(2) would be applicable in such a case, if the intermediate product is utilised for the manufacture of the dutiable final product. The policy makers are also aware that packaging material, by its very nature, can be brought into the picture only after the process of making the product meant to be packed is complete. Notwithstanding this, they have not applied any bar, in such cases, either under Rule 57D(2) or in Rule 57F(2). In other words such packaging materials are also placed on the same footing for purposes of these Rules as other inputs going into the making of the product. Hence viewed from this angle, we feel that the policy makers also apparently have kept the specific definition of ‘manufacture’ in the excise law, being available in interpreting the term ‘manufacture’ used in these rules and we cannot ignore this definition.
7. With the aforesaid views set out above on issues at (i), (ii) and (iii), we now turn to issue at (iv)–namely whether there is a conflict in the views of the Regional Benches. We observe that the Southern Regional Bench in the case of Ponds India Ltd. 1988 (19) ECR 321 held that PVC, LDPE, HDPE granules received as input for manufacture of plastic jars lids etc. for packing cosmetics cannot be made eligible for Modvat credit and movement outside the factory to job worker for such manufacture cannot be permitted under Rule 57F(2). This decision was, no doubt, cited before us in the two cases decided by us namely Park Products and FDC Ltd. (supra). We have distinguished the decision and also agreed with the view that plastic granules cannot be identifiable as packaging material, since they are general purpose material for manufacture of any moulded product and not necessarily a packaging material. Now, we find that the same Southern Regional Bench have, in the case of Collector of Central Excise v. Indo Swing Ltd. 1992 (19) ETR (19) 372, taken the view that tissue paper, though covered by the inclusive definition of input covering packaging material in Rule 57A, would not be eligible for Modvat credit, because it is converted to wax paper, which is a distinct excisable product and is not emerging as an intermediate product in the manufacture of safety Razor blades. Since such waxed paper is exempted, it cannot come under the purview of Rule 57D(2), but would attract the mischief of Rule 57C. Their findings in para 4 of the said order may be referred to. This view appears to be in conflict with the views set out in the earlier paras held by us. Though in this decision, the definition of ‘Manufacture’ as per excise law is referred to in passing, its significance, while applying to provisions of Rules 57A, 57C, 57D particularly with reference to that term ‘Manufacture’ occurring in these Rules, has not been spelt out. Be that as it may, it is apparent that Southern Regional Bench have taken a view, which is not agreeing with the views taken by this Bench and that of East Regional Bench in the case of Rasoi Ltd. (supra). Hence, in all fairness, the issue calls for a reference to the larger Bench in terms of the case law laid down by the Supreme Court in Paras Laminates case.
8 (sic). Accordingly, we request the President to constitute a larger Bench for appropriate decision by going into the conflicting views as held by us and East Regional Bench vis-a-vis South Regional Bench. The issues identified are at (i) to (Hi) discussed above and are not repeated here. The contra views held by the Southern Regional Bench are contained in para 4 of their order in the case of Indo Swing 1992 (19) ETR 372 : 1992 (57) ELT 506.
10. Before parting, we also would like to keep on record that the arguments of both the sides on the maintainability of the demand on the ground of time bar have not been considered by us, which shall have to be considered, if the issue is held against the appellants on merits, by the larger Bench.