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High Court of Judicature at Madras
THE HONOURABLE MR. JUSTICE ABDUL HADI & THE HONOURABLE MR. JUSTICE RAJU
Ponds (India) Limited - Appellant
Versus
Collector of Central Excise - Respondents
Referred Case No. 1 of 1990
Decided On : 14 October 1992
MODVAT - Plastic granules used for making containers - Whether eligible for MODVAT credit - Held yes
Fact of the Case:
The applicant, a manufacturer of cosmetics, sought permission to avail MODVAT credit on raw materials (plastic granules) used in the manufacture of plastic jars, which were used as containers for excisable goods. The Assistant Collector, Collector of Central Excise (Appeals), and the Tribunal held that the applicant was not eligible for the credit.
Finding of the Court:
The Court held that the plastic granules were "inputs" within the meaning of Rule 57-A of the Central Excise Rules, 1944, and were therefore eligible for MODVAT credit. The Court also held that the manufacture of plastic containers was an intermediate stage for the completion of the manufacture of the final products and that the applicant was entitled to the credit under Rule 57-D(2).
Issues: Whether the plastic granules used in the manufacture of containers were "inputs" within the meaning of Rule 57-A of the Central Excise Rules, 1944.
Ratio Decidendi: The Court interpreted the term "inputs" in Rule 57-A broadly to include packaging materials, and held that the plastic granules, which were used to make the containers for the excisable goods, were packaging materials. The Court also held that the manufacture of the plastic containers was an intermediate stage in the manufacture of the final products, and that the applicant was therefore entitled to MODVAT credit under Rule 57-D(2).
Final Decision: The Court answered the four questions referred to it in the negative, in favor of the applicant.
ABDUL HADI, J.
Pursuant to the order of this Court under Section 35G(3) of the Central Excises and Salt Act, 1944 (hereinafter referred to as 'The Act') dated 22-11-1989 in R.C.P. No. 20 of 1989, directing the Customs, Excise and Gold (Control) Appellate Tribunal, Southern Regional Bench of Madras, to refer four questions of law specified below, to this Court for its opinion, the said Tribunal has referred the same and thus this R.C. No. 1 of 1990 is before us. The said four questions arise out of the said Tribunal's order dated 15-10-1987 in Excise Appeal No. 271 of 1987 (MAS.) filed by the appellant therein. Pond's (India) Limited (the applicant before us).
2. The said questions relate to scheme known as MODVAT. MODVAT is short form of Modified Value Added Tax. This scheme enables the manufacturers, whose manufactured products (termed as "final products") suffer excise duty under the Act, to obtain instant and complete reimbursement of specified duty paid on the goods used in or in relation to the manufacture of the said products. (These goods are referred to as "inputs"). In other words, the charge of excise duty on the abovesaid final products is only on thevalue addedto the said inputs, which had already suffered duty. This scheme was introduced on 1-3-1986 by inserting Rule 57-A to Rule 57-N under the new section or heading "AA. Credit of duty paid on excisable goods used as inputs" to the Central Excise Rules, 1944. It is amodificationor improvement of the pre-existing proforma credit scheme. Hence it is known as Modified Value Added Tax or MODVAT shortly. The object of the scheme is to eliminate the cascading effect on the excise duty levied on the final products, or, in other words, to avoid payment of duty on earlier duties paid.
3. The applicant herein is a manufacturer of cosmetics. It sought permission of the Assistant Collector of Central Excise, Madras-5 Division for taking the abovesaid MODVAT benefit on certain raw materials or plastic granules, known as LDPE, HDPE and PVC compoundused in the manufacture ofplastic jars etc., used ascontainersfor theexcisable goods, shampoo, talcum powder and cream manufactured by it. Admittedly those plastic jars, etc. used as containers are exempted from excise duty. But the abovesaid raw materials, which went to make up those containers suffered excise duty. Further, admittedly, the applicant did not manufacture the said containers in its own factory, using the abovesaid raw materials, but instead purchased those raw materials and sent them to processors for the manufacture of the said containers and after the said manufacture, brought the containers to its factory and used them in packing its abovesaid excisable final products, viz., shampoo, cream, talcum powder etc.
4. The Assistant Collector by his order dated 18-7-1986, has held that the applicant is not eligible to avail the said MODVAT credit on those raw materials under the abovesaid Rule 57-A and that consequently it cannot also seek permission to operate under Rule 57-F(2) thereof. The Assistant Collector has also found that Rule 57-D(2) thereof also has no application. The said order of the Assistant Collector was also concurrently upheld by the Collector of Central Excise (Appeals), Madras by his order dated 29-1-1987 in the first appeal filed by the applicant and by the abovesaid Tribunal in the abovesaid second appeal filed by it. viz. Excise Appeal No. 271 of 1987 (MAS). Subsequently the applicant filed the reference application under Section 35G(1) of the Act to the Tribunal. But that was also dismissed by an order dated 10-1-1989, holding that there was no question of law arising out of the abovesaid Tribunal's order dated 15-10-1987. Then the application filed in R.C.P. No. 20 of 1989 in this Court under Section 35-G(3) of the Act resulted in the above order dated 22-11-1989. Pursuant to the said order, four questions have been referred to us, those questions are :-1.Is it correct in law for the Tri
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