1994 (10) TMI 70 - HC - Central Excise

Summary

Issues Involved:

1. Entitlement to credit of duty paid on paper bags used in the manufacture and marketing of cement.
2. Interpretation and applicability of Rule 57A of the Central Excise Rules, 1944.
3. Allegation of discriminatory practice in granting MODVAT credit facility.
4. Validity of the orders passed by the Central Excise authorities denying credit of duty.

Issue-wise Detailed Analysis:

1. Entitlement to Credit of Duty Paid on Paper Bags:

The petitioners, a company engaged in the manufacture of cement, sought writs of mandamus and certiorarified mandamus to direct the respondents to permit the credit of duty paid on paper bags used in the packing and marketing of cement. The petitioners contended that the duty paid on paper bags should be allowed as a credit for discharging the duty on the final product, i.e., cement. The respondents denied this credit, arguing that paper bags are not used in the manufacture of cement but are a post-manufacturing element.

2. Interpretation and Applicability of Rule 57A:

Rule 57A of the Central Excise Rules, 1944, provides for credit of duty paid on excisable goods used as input in the manufacture of final products. The petitioners argued that the paper bags used for packing cement should be considered as inputs under Rule 57A. The respondents, however, contended that since cement can be marketed in a naked condition, paper bags do not qualify as inputs used in the manufacture of cement. The court examined the language of Rule 57A and relevant case law, including the Supreme Court's decisions in M/s. Doypack Systems Pvt. Ltd. v. Union of India and Collector of Central Excise v. Ballarpur Industries Ltd., which emphasized a broad interpretation of "inputs" to include packaging materials.

3. Allegation of Discriminatory Practice:

The petitioners highlighted that similar credit facilities were granted to other cement manufacturers in Tamil Nadu and other regions, such as M/s. Chettinad Cement Corporation Limited. They argued that the denial of credit to them constituted discriminatory practice. The respondents did not dispute that other manufacturers were allowed the MODVAT credit for paper bags but maintained their stance based on their interpretation of Rule 57A.

4. Validity of the Orders Passed by the Central Excise Authorities:

The court reviewed the orders passed by the Superintendent of Central Excise, the Collector of Central Excise (Appeals), and the CEGAT, all of which denied the petitioners' claim for credit. The court found that these orders were based on a narrow interpretation of Rule 57A and did not align with the broader judicial interpretation of "inputs" as including packaging materials necessary for making the final product marketable.

Conclusion:

The court concluded that paper bags used for packing cement should be considered as inputs under Rule 57A and are entitled to MODVAT credit. The orders denying the credit were quashed, and the respondents were directed to permit the petitioners to utilize the credit of duty paid on the paper bags. The petitioners were also allowed to withdraw their reference application pending before the third respondent.

Final Order:

- Writ Petition Nos. 11090 and 12924 of 1994 were allowed.
- The impugned orders in Writ Petition Nos. 11090 and 12924 of 1994 were quashed.
- Respondents were directed to permit the petitioners to utilize the credit of duty paid on paper bags.
- The petitioner in Writ Petition No. 12924 of 1994 was directed to withdraw the reference application made before the third respondent.
- No costs were awarded.