1987 (2) TMI 84 - AT - Central Excise

Issues Involved:
1. Whether packing materials (paper tubes, corrugated paper discs, and cardboard boxes) are considered 'inputs' under Notification No. 201/79-C.E.
2. Interpretation of the term 'used in the manufacture' in the context of Notification No. 201/79-C.E.

Detailed Analysis:

1. Whether packing materials (paper tubes, corrugated paper discs, and cardboard boxes) are considered 'inputs' under Notification No. 201/79-C.E.:

The appellants manufacture rayon tyre yarn cord, which is wound on paper tubes and secured with corrugated paper discs to prevent collapse. These are then placed in cardboard boxes. The appellants claimed that these packing materials should be considered 'inputs' under Notification No. 201/79-C.E., allowing them to set off the duty paid on these materials against the duty payable on the final product.

The Assistant Collector of Central Excise disallowed the claim, stating that these packing materials were not essential ingredients in the manufacture of rayon tyre yarn and cord. The Appellate Collector upheld this decision, arguing that the use of goods "in connection with manufacture" does not equate to use "in the manufacture."

The appellants contended that the cost of packing was included in the assessable value of the goods, and hence, the packing materials should be considered as 'inputs.' However, they failed to provide evidence that these materials met the criteria laid down in the notification and constituted goods used in a process ancillary or incidental to the manufacture of finished excisable products.

2. Interpretation of the term 'used in the manufacture' in the context of Notification No. 201/79-C.E.:

The core issue was whether packing materials could be considered as 'used in the manufacture' of the finished goods. The appellants argued that the materials used for packing were 'inputs' under the notification. They relied on several case laws, including 'Union of India v. Bombay Tyre International,' 'Union of India & Others v. Godfrey Phillips India Ltd.,' and others, to support their argument.

The respondents argued that packing materials could not be considered as 'inputs' for the purpose of the notification. They cited the Supreme Court's judgment in 'J.K. Cotton Spinning and Weaving Mills Ltd. v. Sales Tax Officer, Kanpur,' which examined the term 'manufacture' in the context of the Sales Tax Act, not the Central Excises and Salt Act, 1944.

The Tribunal noted that the Supreme Court's observations in 'Union of India v. Bombay Tyre International' and 'Union of India & Others v. Godfrey Phillips India Ltd.' were related to valuation and not directly applicable to the issue at hand. Similarly, the Tribunal's order in 'CCE, Calcutta v. M/s. Union Carbide India Ltd.' and the Supreme Court's order in 'Assistant Collector of Central Excise and Others v. Madras Rubber Factory and Others' dealt with valuation and were not applicable to the present case.

The Tribunal referred to the Supreme Court's judgment in 'J.K. Cotton Spinning and Weaving Mills Ltd. v. Sales Tax Officer, Kanpur,' which examined the expression 'in the manufacture of goods' within the meaning of Section 8(3)(d) read with Rule 13 of the Central Sales Tax Act and Central Sales Tax (Registration & Turnover) Rules, 1957. The Supreme Court observed that the expression 'in the manufacture of goods' should encompass the entire process of converting raw materials into finished goods. If a process is integrally connected with the ultimate production of goods, the goods required in that process would fall within the expression 'in the manufacture of goods.'

Applying this interpretation, the Tribunal held that the paper tubes and discs used by the appellants were essential for winding the yarn and preventing it from collapsing, making them integral to the manufacture of the finished goods. However, the cardboard boxes were deemed necessary only for protecting the already manufactured yarn and not for the manufacturing process itself.

Conclusion:

The Tribunal concluded that the paper tubes and discs used by the appellants were 'inputs' under Notification No. 201/79-C.E. as they were used in the manufacture of the finished goods. The appeal was allowed in respect of these items. However, the cardboard boxes were not considered 'inputs' as they were used only for protecting and transporting the already manufactured yarn. The appeal was rejected in respect of the cardboard boxes.

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