K.S. Venkataramani, Member (T)

1. This appeal is directed against the order dated 29.1.1987 passed by the Collector of Central Excise (Appeals), Madras, and by which he had upheld the order of the Assistant Collector of Central Excise, Madras V Division, dated 18.7.1986, holding that the appellants were not eligible for availing MOD-VAT credit on PVC, LDPE, HDPE and Polypropylene and consequently being ineligible to operate under Rule 57F(2) of the Central Excise Rules relating to MODVAT.

2. The appellants herein sought permission for taking MODVAT on HDPE etc. used in the manufacture of plastic jars etc. which are used for packing the excisable goods manufactured by the appellants viz. Shampoo, Talcum Powder, Cream, etc. The raw materials which are used for manufacture of the jar viz. HDPE etc. fall under Chapter 39 and the inputs of the appellants viz. packing materials fall under Chapter 39 while the final products Shampoo, Talcum Powder fall under Chapter 33 of the Central Excise Tariff Act. The appellants are purchasing the raw materials and sending them to processors for manufacture of the packing materials. The packing materials which are exempted are brought back to the appellant's factory and used in packing the final products. The Assistant Collector held that the intermediate products are exempted and they are also not used in the factory for production by the appellants and hence they are not eligible for MOD-VAT for the said inputs. He also rejected their application for operating under Rule 57F(2) of the Central Excise Rules which provides for the manner of utilisation of the inputs and provides for the inputs to be removed to a place outside the factory for certain specified purposes and to be received back. The Assistant Collector held that when the materials are not eligible fundamentally for MODVAT itself under Rule 57A, the question of permitting the appellants to operate under Rule 57F(2) would not arise. It was also held that Rule 57D(2) also has no application. The order of the Assistant Collector was upheld by the Collector (Appeals) against which the present appeal has been preferred.

3. Appearing for the appellants the learned Consultant Shri Chidambaram, contended that the main objective of the MODVAT scheme has been set out in para 115 of the Finance Minister's Budget Speech for 1986-87 that the scheme is to avoid payment of duties on earlier duties paid. It is to avoid the cascading effect of excise duty and consequently duty paid on raw materials such as HDPE, LDPE etc. which cannot be set off against jars, bottles etc. manufactured therefrom has necessarily to be set off only against the duty payable on the final products which are cosmetics and toilet preparations. According to him Rule 57F specifically provides to situations which are not covered by Rule 57D(2) relating to intermediate products. Further Rule 57A which spells out the applicability of MODVAT gives the expression that duty paid on goods used in or in relation to manufacture of final products and the expression 'in relation to manufacture' is wide enough to cover the claim of the appellant for MODVAT benefit when the inputs are clearly shown to be used in the manufacture of the final products. He referred to the definition of the term manufacture in Section 2(f) of the Central Excises and Salt Act, as amended to say that manufacture includes any process which is specified in relation to any goods in the Section or Chapter Notes of the Schedule of the Central Excise Tariff Act, 1985 as amounting to manufacture. The Chapter Notes 2 and Chapter Note 4 of Chapter 33 of the Central Excise Tariff Act indicates that when the goods are packed in unit containers, it would amount to manufacture of the goods. He also referred to the Assistant Collector's order in which he has stated that there is no Notification under Rule 57J of the Central Excise Rules for the appellants products to permit availment of MODVAT credit on the inputs used in t