ORDER
U.L. Bhat, J. (President)
1. Appellant, engaged in the manufacture of biscuits, was receiving duty paid flattened tin containers and using the same for packing biscuits. These metal containers were exempt from payment of excise duty till 30-6-1986. The dispute in the present appeal relates to the period from 2-3-1987 to 31-3-1988. On 2-3-1987, appellant filed a declaration stating that benefit of Modvat credit will be availed of the duty paid on metal containers. On receipt of the acknowledgement for the declaration, appellant started availing benefit of Modvat credit. Show cause notice dated 31-10-1988 was issued stating that Modvat benefit was not available, in view of exclusion Clause (iii) of the explanation to Rule 57A of the Central Excise Rules, inasmuch as, the cost of the container had not been included during the preceding financial year in the assessable value of the final product (on account of the exemption available for the containers during the preceding financial year) and proposing demand of an amount of duty equal to the amount of Modvat credit availed during the period from 2-3-1987 to 31-3-1988. Though the appellant resisted the notice, Assistant Collector confirmed the demand and his order was confirmed by the Collector (Appeals). Hence, the present appeal.
2. Learned Counsel for the appellant made submissions on merits as well as on the aspect of limitation. Show cause notice dated 31-10-1988 was issued after expiry of more than six months prior to 31-10-1988. The Assistant Collector, who issued notice, did not invoke the proviso to Section 11A of the Act and did not make any allegations which would attract the operation of the proviso. In this view, we find the demand in the show cause notice was barred by time and entire demand fails on this ground.
3. The scheme of Rule 57A is to enable grant of benefit of Modvat credit in respect of specified duty on specified inputs used in or in relation to manufacture of specific final product. There is no dispute regarding the input or final product in this case. The explanation to the Rule furnishes an inclusive and exclusive definition of the expression ‘input’. “Input” by virtue of Explanation (a) includes, inter alia, “paints and packaging materials”. Exclusion Clauses (ii) and (iii) read as follows:-
“(ii) packaging materials 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 any final products;
(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 products under Section 4 of the Act.”
Packaging materials which fall under either Clause (ii) or (iii) are excluded from the definition of “inputs”. The question is whether duty paid flattened tin containers used by the appellants for packing biscuits are to be regarded as “packaging material”. It is submitted that Clause (iii) will be attracted, inasmuch as, during the preceding financial year, the cost of such containers had not been included in the assessable value of the final product under Section 4 of the Act. It appears that Clause (ii) would more appropriately apply, since the containers used during the preceding financial year enjoyed benefit of full exemption. This, of course, is subject to the expression “packaging material” comprehending the tin containers used by the appellant.
4. The learned Counsel for the appellant contended that “packaging” is different from “packaging material”, ‘packaging material’ comprehending only materials from out of which packing or container could be produced. Illustrating this, the learned Counsel stated that plastic granules used for the production of plastic containers would be packaging materials and “plastic containers” made from granules would be only packing materials and not packaging materials. He invited our attention to the circumstance that the expression ‘packaging materials’ has not been used in Section 4(4)(d)(i) of the Central Excise Act, 1944. According to Section 4(4)(d)(i) of the Act, where goods are delivered at the time of removal in a packed condition, “value” includes the cost of such packing except the cost of the packing which is of a durable nature and is returnable by the buyer to the assessee. The Explanation to this proviso states that “packing” means the wrapper, container, bobbin, pirn, spool, reel or wrap beam or any other thing in which or on which the excisable goods are wrapped, contained or wound. The above proviso would clearly indicate that “packing” the cost of which is dealt with in Section 4(4)(d)(i) is ready to use packing and not raw materials out of which such packing is made.
5. Undoubtedly, there is a difference between the language used in Section 4(4)(d)(i) of the Act and the exclusion Clauses (ii) and (iii) of the Explanation to Rule 57A of Central Excise Rules. According to the appellant, the purpose of using expression “packaging” material” is to make it clear that what is being dealt with in the clauses of inclusion and exclusion is only raw material from which package or container could be made and not package or container itself.
6. According to the department, the expression “packaging material” has been used in a wide sense to comprehend not only ready made packages or containers but also raw materials from out of which readymade packages or containers are made.
7. Both sides have adverted to the decision of the High Court of Madras in the case of Ponds (India) Ltd. v. CCE reported in 1993 (63) E.L.T. 3 (Mad. HC) and the decision of the Larger Bench in the case of Ashwin Vanaspati Industry (Pvt.) Ltd. v. CCE reported in 1994 (70) E.L.T. 754 (T). The Madras High Court in the case of Ponds (India) Ltd. reported in 1993 (63) E.L.T. 3 answered the reference arising from the decision of the Tribunal reported in 1988 (38) E.L.T. 351 (T) by holding that plastic granules used by the assessee in producing plastic containers for packing toilet articles manufactured by the assessee are “inputs”, in respect of which Modvat credit would be available. We find it necessary to advert to some portions of the judgment of the High Court.
8. The High Court dealt with the decision of the Tribunal in the case of FDC Limited v. Collector reported in 1991 (55) E.L.T. 601. a decision of the Western Bench of the Tribunal relating to eligibility of Modvat benefit in respect of duty paid on printed aluminium foils used to make containers for packing medicaments. The Tribunal indicated that the term ‘packaging materials’ has a wider connotation and meaning and if the intention was to include only ready to use containers such as boxes or bottles, then the term used would have been “package” or “container” and in the absence of any such restrictive meaning provided, the term “packaging material” has to be interpreted as such and cannot be interpreted in a restrictive manner. In Paragraph 11 of the judgment, the High” Court indicated its agreement with the view expressed by the Western Bench of the Tribunal in the case of FDC Limited. The High Court in Paragraph 19 of the judgment relied on the observation of the Supreme Court in the case of Hospital Mazdoor Sabha reported in AIR 1960 SC 610 to the effect that the words used in an inclusive definition denote extension and cannot be treated as restricted in any sense and while dealing with an inclusive definition, it would be inappropriate to put a restrictive interpretation upon terms of wider denotation. The High Court held that plastic granules are comprehended within the meaning of the expression “packaging materials”. This finding was arrived at in reversal of the view taken by the Madras Bench of the Tribunal that plastic granules could not be “packaging materials” within the meaning of the inclusive definition in the Explanation to Rule 57A of the Central Excise Rules. The above observation of the High Court would make it clear that the Court preferred to go by wider meaning of the expression “packaging materials”.
9. The words “package” and “packaging materials” may have different connotations. By package is meant ready-to-use containers. “Packaging materials” would include not only the materials such as containers which can be straightaway used to pack goods but also materials from which package or container could be made. This is the wider meaning of the expression “packaging materials”. We find support for this view in the order in Ashwin Vanaspati Industry Pvt. Ltd. case reported in 1994 (70) E.L.T. 754 (T), wherein the Larger Bench of the Tribunal observed as follows in paragraph 17 of the order:
“It is thus clear that the intention of the framers is explicit that they have not intended to restrict the benefit only to ‘ready to use’ material, but to the raw material from which the packages or containers have to be manufactured.”
We do not think, as contended by the learned Counsel, that the observation in Paragraph 21 of the order would lead to a contrary position.
10. We find no justification or logic in giving a restrictive meaning to the term “packaging materials” occurring in explanation to Rule 57A of the Central Excise Rules. The intention evidently was to use an expression which can comprehend not only finished containers but also raw materials from which finished containers are made. This appears to be the purpose sought to be achieved by the inclusive definition. The expression “packaging material” is certainly capable of such wider interpretation; that being so, the wider interpretation has to be accepted.
11. In the above view, the expression “packaging materials” used in the exclusion Clauses (ii) and (iii) of the Explanation to Rule 57A of the Central Excise Rules also includes readymade containers received and used by the appellant in packing biscuits. It is admitted that the containers used by the appellant during the preceding financial year enjoyed the benefit of exemption from payment of duty. Therefore, exclusion Clause (ii) of the Explanation would be attracted and the containers received by the appellant during the period under consideration cannot be regarded as “inputs” for the purposes of Rule 57A of the Central Excise Rules and the appellant would not be entitled to the benefit of Modvat credit during the relevant period. However, we have already held that the demand proposed in the show cause notice is barred by time.
12. We set aside the impugned orders holding that the show cause notice was barred by time and allow the appeal.
