ORDER
A.C.C. Unni, Member (J)
1. In this appeal against the order of the Collector of Central Excise, New Delhi dated 26-7-1994 the question relates to admissibility of Modvat credit on glass bottles used in the manufacture of Aerated waters. Collector by impugned order confirmed duty demand of Rs. 1,72,234/- in respect of Modvat credit on 3,13,728 numbers of glass bottles under Rule 57-1 of the Central Excise Rules, 1944.
2. Appellants are engaged in the manufacture of aerated waters falling under Chapter sub-heading Nos. 2201.12, 2202.11 and 2202.12 as also certain other items. They were also taking Modvat credit of duty paid on inputs used in the manufacture of their final products. Scrutiny of gate passes relating to glass bottles by the Department showed that glass bottles were first printed/decorated/labelled and then despatched to the appellants’ factory which meant that glass bottles were not received by the appellants in original packing condition. It was also observed that the cost of the bottle was not included in the assessable value and as per the provisions of Rule 57A(iii) the cost of packing material which had not been included during the preceding financial year in the assessable value of the final products under Section 4 of the Central Excises and Salt Act, 1944. Further, it was also observed that the appellants were charging the customers separately for the glass bottles supplied with aerated waters and the same was kept as security and when the glass bottles were returned the security was released. As the glass bottles were not consumed along with the aerated waters, they were not inputs of the final products, the Department took the view that Modvat credit was not admissible under Rule 57A. Accordingly, a SCN was issued to appellants on 20-1-1992 to show cause as to Why the credit availed on glass bottles should not be 15/962 recovered and why penalty should not be imposed.
3. After considering their reply and after hearing the appellants the Collector dropped demand in respect of 18,93,816 bottles amounting to Rs. 10,39,686/- but confirmed demand on 3,13,728 bottles amounting to Rs. 1,72,234/-. Collector relied on the CBEC Circular No. 19/92-CX. 8, dated 3-9-1992 which provided (relying on the Board’s earlier Circular No. 19/88-CX. 8, dated 28-6-1988) that Modvat credit would be allowed on glass bottles/tin containers. The Board had also clarified that Modvat credit should not be denied on glass bottles on the ground that such glass bottles are treated as fixed assets by assessees. As regards bringing of duty paid glass bottles after printing/decoration through job workers, the Board had clarified that so long as duty had been paid on glass bottles credit should not be denied merely for the reason that they had been treated as fixed assets or because they have not been received in original packing. Collector also verified from duty paying documents whether the procedure prescribed for the said purposes had been satisfied. On the basis of the verification, Collector allowed Modvat credit on 18,93,816 Nos. of empty bottles lying in stock on 25-7-1991 but denied it in respect of 3,13,728 Nos. of bottles filled with aerated waters in view of the provisions of Rule 57H(l)(b) (as it stood at the relevant time) which restricted the benefit to inputs used in the manufacture of final products and not the final products themselves.
4. Arguing the case of the appellants, Shri D.N. Mehta, ld. Counsel submitted that the distinction made by the Collector between empty glass bottles and glass bottles containing aerated waters was not warranted. He also contended that the adjudicating authority had failed to construe the provisions of Rule 57H(l)(b) which was inserted on 25-7-1991 to enable manufacturers to take Modvat credit in respect of inputs used in the stock of output which Were still lying in the factory at the time of filing of the declaration. He also drew attention to the judgment of the M.P. High Court in Gilt Pack Limited v. Assistant Collector -1994 (69) E.L.T. 222 (M.P.) in support. He relied on the Supreme Court decision in H.M.M. Ltd. v. Collector of Central Excise, New Delhi -1996 (87) E.L.T. 593 which, though delivered in the context of set-off of duty under Notification No. 201/79-C.E., would be relevant in the context of availments of Modvat credit as well.
5. Appearing for the Respondent Collector, Shri P.K. Jain, ld. SDR reiterated the findings of the Collector in the impugned order.
6. We have carefully considered the submissions made before us and have perused the records and the case law cited on behalf of the appellants. We observe that the Tribunal had in Collector of Central Excise v. Black Diamond Beverages, 1996 (83) E.L.T. 143 (Tribunal) examined the request of reversal of credit lying in stock when the final product was withdrawn from Modvat Scheme. Relying on the decision of the Tribunal in Tripty Drinks (P) Ltd. v. Collector of Central Excise, 1993 (63) E.L.T. 101, the Tribunal had held that since there was no provision in the Modvat Rules or in the Notification withdrawing the benefit of Modvat Scheme on the final products there cannot be any recovery of credit already utilised under Rule 57F. Further, the Tribunal has in Ravi Paints and Chemicals v. Collector of Central Excise, 1996 (63) ECR 433 held that credit taken on inputs and utilised when the final product was dutiable would not be required to be reversed when the final product becomes exempted from duty subsequently. We also find that the M.P. High Court judgment in Gilt Pack Limited v. Assistant Collector, supra has held that denial of Modvat credit would not be justified when the final product was cleared after payment of full duty with the full knowledge of excise authorities. Disallowing of credit later would be erroneous. It is also seen that in H.M.M. Ltd. v. CCE, supra, the Hon’ble Apex Court had upheld the assessees claim to take credit on duly paid inputs even though the goods manufactured out of such inputs had been transferred in bulk packing without payment of duty to another unit of the same manufacturer for being packed and cleared for the purposes of unit packing.
7. Having regard to the ratio of the said decisions, we are of the view that the lower authority had wrongly denied Modvat credit to the appellants in respect of 3,13,728 Nos. of bottles filled with aerated waters. We agree with the contention of the ld. Counsel for the appellants that the distinction made by the Collector between empty bottles containing aerated water was not warranted in this case. We, therefore, allow the appeal and set aside the impugned order with consequential benefit to the appellants, if any, in accordance with law.