ORDER
K. Sankararaman, Member (T)
1. The appeal by M/s. Geep Industrial Syndicate Ltd. is against the order-in-original, dated 12/22-11-1990 passed by Additional Collector of Central Excise, Allahabad confirming a demand of duty of Rs. 3,37,880.81 and imposing penalty of Rs. 10,000/-. The duty has been demanded by holding that they were not eligible for Modvat Credit in respect of Duplex Board claimed by them as an input in relation to the manufacture of their final product, Torches. The item Duplex Board was held to be not a packing material for torches. It would become a packing material only after it is converted into printed cartons. Torch cannot be packed in a Duplex Board. The amount of credit availed by them was held to be recoverable from them under the provisions of Rule 57-1 read with proviso to Section 11A of the Central Excises and Salt Act, 1944. It was observed by the Addl. Collector that there was no question of time bar as the assessments were provisional till August, 1990. There is a finding of blatant and obvious mis-declaration by them. Penalty of Rs. 10,000/- has been imposed on them.
2. In the appeal, the appellants have urged that Duplex Board is a packing material itself. In the explanation under Rule 57A, certain exclusions are there e.g. Plywood for Teachest. Thus the raw materials for packing are covered under the Rule and only Plywood for Teachest is excluded. They had relied upon the judgment of the Supreme Court in J.K. Cotton Spinning and Weaving Mills, reported in 1965 (16) S.T.C. 563 regarding the scope of the expression “in the manufacture of goods” and the Tribunal decision in Rasoi Ltd. v. CCE -1990 (49) E.L.T. (Tri.) .They have also pointed out that they had submitted the necessary application under Rule 57F(2) of Central Excise Rules for sending Duplex Board to job worker and get the cartons. The Department cannot allege any suppression to invoke the extended period of limitation under the proviso to Section 11A(1). The penalty is also not justified, it has been pleaded.
3. Shri V. Sridharan, learned advocate appeared for the appellants. He submitted that the matter stands concluded by the larger Bench decision in Ashwin Vanaspati Indus. (Pvt.) Ltd. v. Collector of Central Excise, Vadodara, 1994 (70) E.L.T. 754 which followed the Madras High Court judgment in Ponds India v. Collector of Central Excise, 1993 (63) E.L.T. 3 and the Supreme Court decision in East End Paper Industries, 1989 (43) E.L.T. 201 which in turn followed their earlier judgment in J.K. Cotton Spinning & Weaving Mills Co. Ltd. v. Sales Tax Officer. The larger Bench resolved the conflict in views between the South Regional on the one hand and the East and West Regional Benches on the other on the scope of the term “Packaging material” for determining Modvat eligibility of materials like Tin Plates, Duplex Board etc. used for making containers like Tins, cartons which are then used for packaging the final products. It was held by the larger Bench that tin sheets used for making tin containers, which were exempt from duty being manufactured without the aid of power are eligible for Modvat credit, the tin containers going into the packing of vanaspati. The tin containers were held to be covered by provisions of Rule 57D and the claim for availment would not be hit by Rule 57C. Shri Sridharan also cited the Delhi High Court judgment in Ganesh Flour Mills v. Chief Commissioner, Delhi reported in 1968 STC which was affirmed by Supreme Court vide AIR 1973 SC 705. He also referred to the Tribunal decision in Hindustan Lever Ltd. v. Collector of Central Excise, Calcutta-II, reported in 1994 (70) E.L.T. 595. Shri Sridharan pleaded in conclusion that in view of the clear legal position which has also been followed in the larger Bench in the Ashwin Vanaspati case, their appeal be allowed.
4. Shri M.M. Mathur, learned Joint Chief Departmental Representative who appeared on behalf of the respondent-Collector left the matter to be decided by the Bench in view of the larger Bench decision.
5. We have considered the submissions. As pointed out by Shri Sridharan the issue stands resolved by the larger Bench decision in the Ashwin Vanaspati case. While respectfully following the same, we would like to deal with the problem from the following two angles to reach the same conclusion –
(1) Whether the material in question, namely Duplex Board is a Packaging material for being considered eligible for the benefit of Modvat credit under Rule 57A.
(2) Whether the said material is eligible for such benefit de hors the question whether it is a packaging material or not.
The former question has been exhaustively dealt with in Ashwin Vanaspati (supra) leading to the finding that the inputs dealt with in that case namely, Tin Plates and Sheets were themselves Packaging materials for the purpose of grant of Modvat benefit under Rule 57A. On the analogy of the said decision, Duplex Board which is used first for producing cartons which are then used for packing torches are themselves treatable as packaging materials for the purpose of Rule 57A. In this connection we find that the said item “Packaging materials” has also been referred to in the excluded category under the explanation clause in Rule 57A viz. “packaging materials in respect of which any exemption to the extent of duty payable on the value of the packaging material in respect of any exemption to the extent of duty payable on the value of the packaging material is being availed of for packaging any final product” and “packaging material 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 Central Excises & Salt Act.” The reference in Section 4 is to packing which is of a durable nature and returnable by the buyer to the assessee, for purposes of exemption. The term “packing” has been defined there as wrapper, container, bobbin, prin spool, reel or warp beam or any other thing in which or on which the excisable goods are wrapped, contained or wound. In view of this position the expression “packing materials” in such cases would refer to packaging articles ready for use. But the term is not confined to only such ready to use articles but also materials like tin plates as has been brought out in the Ashwin Vanaspati order which has, inter alia, relied upon the Ponds judgment. The distinction between packaging materials and raw materials therefor sought to be created by the department and its attempt to banish inputs like Tin Plate, Kraft Paper, Duplex Board, etc. to the latter category in order to reject their identity as packaging materials for the purpose of Rule 57A and thus deny Modvat credit has been comprehensively rejected by the Madras High Court in the said judgement. The relevant portion from the said judgment is extracted below :-
“In the present case, one of the Board’s clarifications was as follows :-
‘Rule 57A allows Modvat credit for packaging materials and not on raw materials for making such packaging materials. Packaging materials are ready to use articles such as containers, boxes, cartons, bottles etc. Therefore modvat credit will be admissible for the duty paid on such ready to use packaging materials but not on the raw materials such as plastic granules, steel, steel sheets/strips, etc. used for making packaging materials. Raw materials like plastic granules or steel sheets/strips are general purpose articles which can be put to various uses, one of which is making of packaging materials. These raw materials by themselves are not recognisable as packaging materials.’
As already stated, we are unable to agree with this interpretation. We have already pointed out what actually is meant by packaging materials. They only refer to the raw materials which go to make up the above said containers. So, we hold that the abovesaid clarification given by the Board is not correct.”
While following the said judgment, we should respectfully state that, as discussed by us earlier, in view of the specific entries providing for exclusion of certain types of packaging materials, the said entry ‘packaging materials’ would also cover ready to use packaging articles or containers and would not be confined to only raw materials which go to make the containers, as held by the Honourable Madras High Court.
6. Shri Sridharan also cited the judgment of Delhi High Court which was affirmed by the Supreme Court. In that case, Tin Plates and Tin sheets were used by Ganesh Flour Mills, the party involved therein, for making tin containers which were then used for packing vanaspati and vegetable oil. That was a case under Central Sales Tax. Their application to the authorities to amend their registration certificate to include tin plates and tin sheets on the ground that these were used by them for packing vegetable products was refused. The Delhi High Court held that the request had been declined by the Sales Tax Authorities on an erroneous application of law. It was observed by them as follows :-
“The expression ‘containers or materials intended for being used for the packing of goods for sale’ as used in clause (c) of
Sub-section (3) appears to us to have been deliberately couched in a language which brings within its sweep all kinds of ready-made receptacles or other materials which are intended or by slight alteration or fabrication can be converted into such receptacles for the purpose of storage of goods provided the use to which those receptacles are ultimately put by the dealer is not to sell them as independent articles of sale as such, but as receptacles for storage or transportation of goods contained therein for sale. It is not necessary that those materials should be capable of being used directly for purposes of packing. It is quite enough if the intention of the dealers is to acquire them in order that they may be used for packing of goods for sale even if in that process of adapting them for such use they have to undergo some change in shape or form. The dominant intention is that they should serve the purpose of storage or transportation of goods for sale.”
The Supreme Court upheld the judgment on appeal by Lt. Governor Delhi, AIR 1973 SC 705. They held that as the tin sheets and tin plates purchased by the respondents were intended to be used for packing of vegetable products sold by the respondents, they were entitled to invoke the benefit. While agreeing with the reasoning of the High Court, they observed that the fact that the sheets and tin plates have to be subjected to the process of cutting and moulding into tin containers would not take them out of the category of materials intended for being used for the packing of goods for sale. The underlined words, the scope of which had thus been interpreted correspond to the expression “packaging materials” used in Rule 57A with which we are concerned in the present case. These authoritative findings clearly apply to the present case of Duplex Board from which cartons are made which are then used for packing the final products, Torch. The input “Duplex Board” is itself the packaging material in the manufacture of the said final product.
7. Though the appeal succeeds on this question of Duplex Board being itself treatable as packaging material for the purpose of Rule 57A, the same decision would also flow directly from Rule 57A itself, de hors the question whether it is packaging material or not. This entry appears in the inclusive definition of the expression “input” in the Explanation clause under the said Rule. The expression “input” in turn has been used therein to refer to “goods used in or in relation to the manufacture of final products”. Hence one has to only see whether the goods in question are used in or in relation to the manufacture of the final product and the question whether such use is as packaging material is really irrelevant. “Obviously the entry (Paints and) packaging materials has been provided in the Rule to make the position clear about such goods used as packaging material also being eligible for Modvat benefit.” But it has paradoxically led to problems of the present type. The scope of the expression “use in the manufacture” has received authoritative treatment from the Honourable Supreme Court in the J.K. Cotton Spinning and Weaving Mills and East End Paper Industries cases. The definition of the term “manufacture” in Section 2(f) of Central Excises & Salt Act, which includes any process incidental or ancillary to the completion of a manufactured product would be relevant. The process of packing the product thus gets covered in the manufacturing process. The use of Duplex Board in the making of cartons is a process in the manufacture of the final product. It is not an activity unrelated to it but one vitally related. Hence, as the Main Gate of “use in or in relation to manufacture of the final product” is open for the inputs in question, there is no need to divert them to the wicket gate of “packaging materials” which, because of interpretational hazards, may appear to be too small to let them through, though that also should be sufficient enough in this case. On this note, we set aside the impugned order and allow the appeal with consequential relief to the appellants.
7A. The cross-objection is only by way of offering parawise comments. What is sought therein is upholding of the order appealed against. The order having been set aside, the cross-objection stands dismissed.