I.J. Rao, Member (T)

1. The appellants manufacture rayon tyre yarn cord, etc. The yarn and cord are wound on paper tubes. The corrugated paper discs are inserted in the paper tubes so that these tubes do not collapse when the yarn and cord are wound around the same. After winding, the paper tubes are placed in cardboard boxes. The appellants claim that in terms of Notification No. 201/79-CE (hereinafter referred to as the said notification), these three goods are 'inputs' and, therefore, the duty paid on the same should be allowed as set off on the duty payable on the final product, namely, on the nylon yarn and cord. The Assistant Collector of Central Excise disallowed the claim holding that the packing materials in the form of the three articles are not essential ingredients for the manufacture of the rayon tyre yarn and cord, "despite the fact that the cost of packing is included in the assessable value of these items on clearance under Section 4 of the Central Excises and Salt Act, 1944."

2. An appeal was then filed to the Appellate Collector, who rejected it holding that, use of goods "in connection with manufacture" does not amount to use of goods "in the manufacture". Referring to the arguments of the appellants, namely, that on one hand, the value of packing was included in the value of the goods and, on the other hand, packing materials are not considered as inputs used in the manufacture of the goods, the Appellate Collector observed as follows :-

Therefore, while the appellants are right to the extent of observing that the Government cannot blow hot and cold at the same time and include the cost of packing material in assessable value but exclude it for the purpose of Notification No. 201/79 but then they have produced no evidence that out of the various material referred to by them which one satisfies the criteria laid down in this notification and constitutes goods used in a way or by the way of subjecting the principle goods to a process ancillary or incidental to the process of manufacture of finished excisable products. 3ust to illustrate the point, I would like to recall for instance, the well-known fact that in the case of tooth paste collapsible tube, although a container constitutes such goods which are not only essential but are used in a way or put to use by the way of a process which is obviously ancillary or incidental to process of manufacture. Again the primary packing which is essential for the main goods are now being considered as integral part of the process for completion of goods for commercial purposes but secondary packing is not being considered. However, the appellants have not cared to place the relevant material before us in this regard and argue on these principles and practices.

It is, therefore, seen that the issue that was being pursued by the appellants before the authorities below was whether packing is a process incidental or ancillary to the manufacture and, accordingly, is manufacture itself by virtue of the inclusive definition in Section 2(f) of the Central Excises and Salt Act, 1944 (hereinafter referred to as the Act). It was noted that there were quite a few decisions on this issue by the High Courts as well as by the Tribunal which were mutually conflicting. Therefore, under the orders of the President, the matter was heard by a Larger Bench consisting of five Members.

3. We heard Shri V. Lakshmikumaran, Advocate, for the appellants. Shri Lakshmikumaran argued for some time that packing is a process of manufacture'. However, he did not pursue this argument. He argued that the materials, which paid duty under Tariff Item No. 68 of the Customs Excise Tariff and were used to pack the appellants' products, were inputs in terms of the said notification.

4. Shri Lakshmikumaran submitted that the period during which the dispute arose was November and December, 1979. He pointed out that on 28.2.1981, there was an amendment in the notification. Without referring to the amendment, we r