ORDER
G.R. Sharma, Member (T)
1. The captioned two Appeals are directed against the order of the Collector (Appeals). The Collector (Appeals) in his order had held as under:
“7. The goods under question are manufactured as per A.S.T. standards which stipulates that when a length of tubing is washed internally with redistilled chloroform or redistilled I.I.I. trichlorethane, the residue remaining upon evaporation of the solvent shall not exceed 1.25 x l0g = 4/in (0.94 m ) of internal surface. It further says that to maintain this level of cleanliness in shipping, handling and storage the purchaser may request that the manufacturer seal the tube ends with caps and closures. From this it can be inferred that sealing of tubes is not necessary condition for the marketability of the product as the word used is ‘may’ this means that certain buyers may insist on affixing the caps and other may purchase without the same. I agree with the view of the learned Assistant Collector that caps/rubber plugs cannot be treated as packaging material as nothing is contained/wrapped/wound in these plugs. If one goes through the dictionary meaning of the word ‘plug’ as given in the Oxford Concise Dictionary it means “piece of solid material fitting tightly into holes, used to fill cavity or gap or act as wedge, natural or morbid concretion acting thus, slopper or vessel for pipe, device of metal pins in insulated casing, fitting in to holes in socket for making electrical connection electrical socket, release mechanism of water closset alushing apparatus'” Hence it can be assumed that caps/rubber plug is a device or an appliance to prevent contamination only and nothing else, and cannot be considered as a packaging material, by any stretch of imagination. Therefore, it cannot qualify for availment of Modvat Credit as it comes within the purview of exclusion clause to the explanation under Rule 57A of the Central Excises and Salt Act.
8. In view of what is stated above I don’t find any merit in the appeal and reject the same and uphold the impugned orders of the Assistant Collector”.
2. The facts of the case in brief are that the appellants are engaged in the manufacture of copper brazed steel tubes. The appellants filed a declaration under Rule 57G for availing Modvat Credit. In their declaration, they had showed the rubber plug as input and indicated its nature as “packing material” to be used in or in relation to the manufacture of copper brazed steel tubes. The Department was of the view that the rubber plugs used by the appellants in copper brazed steel tubes did not satisfy the condition used in or in relation to the manufacture of the final products. Accordingly, a show cause notice was issued to the appellants to state as to why the Modvat Credit on the rubber plugs should not be denied to them. The appellants submitted that modvat scheme obviated the cascading effect of duty paid on the articles which do not enter the stream of the market as such but go into the manufacture of other goods; that the definition of the expression ‘inputs’ has been left wide open enough by providing inclusions and exclusions; that the Hon’ble Supreme Court in the case of East End Paper Industries Limited reported in 1989 (43) E.L.T. 201 (SC) had held that the expression ‘component parts’ and ‘raw materials’ will mean anything that enters into and forms a part of the manufacturing process or is required to make the article marketable. It was also argued before the lower authorities that the Hon’ble Supreme Court in the case of M/s Jay Engineering Works Limited reported in 1989 (39) E.L.T. 169 (SC) had held that nameplate affixed on an electric fan would constitute an input and would be considered to have been used in the manufacture of fan as fan becomes marketable with the said nameplate. After considering of all the facts, the learned Collector (Appeals) rejected the appeals and upheld the order of the Assistant Collector.
3. Shri G. Shiva Dass, the learned Advocate appearing for the appellants submitted that cellophane tapes used in card board boxes being packing material was to be regarded as input used in relation to the manufacture of final product; that the term packaging material is broader in scope than the expression package. In support of his contention, he cited the case of Hindustan Lever Ltd, reported in 1994 (70) E.L.T. 595. The learned counsel submitted that the Hon’ble Supreme Court in the case of East End Paper Industries Ltd. reported in 1989 (43) E.L.T. 201 had held that since the paper is marketed in packed or wrapped condition, the wrapping paper used in wrapping of paper is to be treated as raw material or component part for other variety of paper which is wrapped; that the Apex Court also, held that – To be able to be marketed, it appears to us, in the light of facts in the appeals – that it was an essential requirement to be goods to be wrapped in paper; that Apex Court further held that – Anything required to make the goods marketable, must form part of the manufacture and any raw material or any materials used for the same would be component part for the end-product.
4. Referring to the Hon’ble Supreme Court judgment in the case of Jay Engineering Works Ltd. reported in 1989 (39) E.L.T. 169, the learned counsel submitted that the Apex Court had held that the commodity manual on electric fan made it obligatory for every manufacturer to affix the nameplates on the fan. In the circumstances, the nameplates are essential for marketing of the fan. In other words, they could not be marketed without the nameplates. The affixing of the nameplates on the fans indicates that the nameplate was an essential ingredient to complete the process of manufacture for marketable electric fans; that this Tribunal in the case of Addisons & Co. Ltd. reported in 1990 (48) E.L.T. 281 (T) had held that – The very nature of the goods is such that these are required to be protected from corrosion and rust, if they are to retain their utility and also for the reason of durability. In view of this, application of oil is a process incidental and ancillary to the manufacture of the tools and the use of the said oil is in relation to the manufacture of tools and therefore, the appellants are eligible to the Modvat Credit in respect of the said oils. Further, the learned counsel submitted that this Hon’ble Tribunal in the case of Salem Steel Plant reported in 1992 (61) E.L.T. 706 (T) had held that – Surface protection film being used to render the goods marketable is considered to be used in or in relation to manufacture of high finished stainless steel and therefore, the benefit of modvat credit under Rule 57A of the Central Excise Rules, 1944 was admissible to the assessee.
5. Now coming to what the goods manufactured by them were, the learned Counsel with the assistance of a sample of the tube, illustrated that the tube conforms to American Society for Testing and Materials stating that the tube was used for automotive in addition to other uses. He stated that certain standards were prescribed for the inside surface cleanliness of the tube and submitted that in case the rubber plugs were not fitted to the tube, inside surface cleanliness cannot be maintained. Referring to the Indian Standard, the learned counsel submitted that same was the case under IS : 8119-76. He submitted that fixing of the rubber plugs was essential for making the copper brazed steel tubes marketable. He referred to an order of Bajaj Auto placed on record stating clearly that – “Tubes with caps fitted at both ends is acceptable to us. Please send pilot lot of 1000 mtrs. with caps at both ends”. The learned counsel submitted that the admitted position was that no copper brazed steel tubes manufactured by them were supplied without rubber plugs at both ends. Referring to a test certificate, the ld. counsel submitted that internal cleanliness was one of the requirements of each steel tube supplied by them.
6. It was explained by the learned counsel that the copper brazed steel tubes would not serve any purpose without being fitted with rubber plugs at both ends. It was also submitted that the cost of these rubber plugs was included in the assessable value; that the admitted position was that the copper brazed steel tubes were supplied with rubber plugs in all cases. The learned counsel concluded his arguments by saying that having regard to the case law cited and relied upon and other submissions made above, the appeals may be admitted.
7. Shri K.K. Dutta, the learned JDR appearing for the respondents submitted that in the declaration filed by the appellants, the rubber plugs have been declared as packing material for copper brazed steel tubes; that packing material has a specific connotation for purpose of modvat credit; that the lower authorities have rightly held that rubber plugs cannot be considered as a packing material; that the rubber plugs can at best be treated as a device to prevent contamination and therefore, as such it comes within the purview of Exclusion Clause under Rule 57A of the Central Excise Rules, 1944; that A.S.T.M. standards indicate that to maintain the level of cleanliness, the purchaser may request the manufacturer to seal the tube ends with caps or closures but that the word ‘may use’ clearly shows that it is not compulsory. Reiterating the findings of the lower authorities, the learned DR submitted that the appeal may be rejected.
8. Heard the submissions of both sides, perused the case law cited and relied upon and considered the submissions made before me. The lower authorities have held that the rubber plugs cannot be treated as packing material. On this issue, the learned Counsel referred to the decision of the Tribunal in the case of Hindustan Lever Ltd. v. Collector of Central Excise reported in 1994 (70) E.L.T. 595 wherein the Tribunal [in para 4] had held as under :
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After discussing the subject that the term ‘packaging material’ cannot be given restricted interpretation saying that only packaging material that will stand excluded will be thus specifically excluded in the Explanation under Rule 57A and allowed the modvat on cellophane taps used in card board boxes. The position in regard to the use of rubber plugs in the brazed steel tubes is similar.
9. The Hon’ble Supreme Court in the case of Eastend Paper Industries Ltd. cited supra had held as under:
“6. To be able to be marketed or to be marketed, it appears to us, in the light of facts in the appeals, that it was an essential requirement to be goods, to be wrapped in paper. Anything required to make the goods marketable, must form part of the manufacture and any raw material or any materials used for the same would be component part for the end-product. In our opinion, the Tribunal was right in the view it took. There is no ground to interfere in these appeals”.
On analysis of the facts of the case before me, I find that the rubber plugs make the tubes marketable as is evident from the copy of the order produced by the appellants. I have no doubt in holding that the rubber plugs make the tubes marketable and therefore, they form part of the manufacture and therefore, the ratio of this decision of the Hon’ble Supreme Court will be applicable to facts and circumstances of the case before me.
10. In the case of Addisons and Co. Ltd. cited supra, this Tribunal had held – Application of anti-rust and anti corrosion oil to the tools before the goods are put in the market is a process incidental and ancillary to manufacture of product as envisaged by Section 2(f) of the Central Excises and Salt Act, 1944. I find that the rubber plugs are essential for closing the ends of the tubes to prevent them from contamination. This fact is very clearly brought out by ASTM and the ISI specification for such tubes. Having regard to this aspect, I hold that the ratio of this decision of the Tribunal will be applicable to the fact of the present case.
11. The appellants also relied on the ratio of the decision of the Tribunal in the case of Collector of Central Excise v. Salem Steel Plant cited supra. In this case, the Tribunal had held that – Surface protection film being used to render the goods marketable is considered to be used in or in relation to the manufacture of high finished stainless steel tubes. The benefit of modvat credit will be available. I observe that rubber plugs are used in the tubes for making them marketable and therefore, the benefit of modvat credit shall be available to rubber plugs.
12. Having regard to the above discussions and the case law cited and relied upon, I respectfully agree with the decisions and hold that the modvat credit will be available to rubber plugs used to prevent the contamination of the steel tubes. In this view of the matter, the appeals are allowed and the impugned order is set aside.