2007 (12) TMI 228 - HC - Central Excise

Cenvat/Modvat - Whether Modvat credit is admissible under Rule 57A of the Central Excise Rules 1944 on glass bottles and plastic crates as packing material for aerated water when the value thereof is not included (i.e. of bottles/crates as such neither declared nor could be ascertained) in assessable value of the final product i.e. aerated water? Held that - There is no merit in these petitions and the same are liable to be declined. We find that under Rule 57A of the Rules Modvat credit is admissible on the specified inputs used in the manufacture of final product. Explanation (iii) to Rule 57A of the Rules define that inputs does not include packaging material if its value has not been included during the preceding financial year in the cost of assessable value. The Tribunal has categorically found as a fact that the cost of packing material has been included in the assessable value although on instalment basis and therefore the assessees are entitled to Modvat credit of duty. The plea taken by the assessees that the cost of glass bottles and plastic crates was included in the aerated water could not be rebutted by the revenue. W.P. dismissed.

Summary

Issues:
1. Admissibility of Modvat credit on packing material for aerated water.
2. Consideration of breakage of glass bottles as part of the assessable value of aerated water.

Issue 1: Admissibility of Modvat credit on packing material for aerated water.
The case involved a petition filed under Section 35G of the Central Excise Act, 1944 against an order passed by the Customs, Excise and Gold (Control) Appellate Tribunal. The primary questions of law were whether Modvat credit is admissible on glass bottles and plastic crates used as packing material for aerated water when their value is not included in the assessable value of the final product. The assessee, engaged in the manufacture of aerated water, was availing Modvat credit on various inputs/packing material under Rule 57A of the Central Excise Rules. A show cause notice was issued due to changes in the Budget 1994-95, claiming that the assessee was not entitled to avail Modvat credit on packing material. The Adjudicating Authority confirmed the demand, but the Tribunal allowed the appeals, stating that Modvat credit shall be admissible where the cost of packing material has been included in the assessable value. The revenue filed a reference application, which was dismissed by the Tribunal, emphasizing that the issue was based on facts regarding the inclusion of packing material costs in the assessable value of aerated water.

Issue 2: Consideration of breakage of glass bottles as part of the assessable value of aerated water.
The Tribunal's decision focused on whether the cost of packaging, such as glass bottles and plastic crates, was included in the price of aerated water, which was deemed a question of fact. The Tribunal held that the question of valuation under Section 4 was beyond the purview of Section 35G, and therefore, rejected the Reference Applications. The court noted that under Rule 57A of the Rules, Modvat credit is admissible on specified inputs used in manufacturing the final product. The Tribunal found that the cost of packing material had been included in the assessable value, entitling the assessees to Modvat credit. The revenue's argument that the cost of glass bottles and plastic crates was not included in the aerated water's value could not be substantiated. Consequently, both petitions were dismissed.

In conclusion, the judgment clarified the admissibility of Modvat credit on packing material for aerated water and emphasized the importance of factual considerations in determining the inclusion of packing material costs in the assessable value. The decision highlighted the significance of complying with Rule 57A of the Central Excise Rules for claiming Modvat credit and underscored the relevance of factual findings in such matters.