2002 (11) TMI 233 - AT - Central Excise

Summary

Issues:
Eligibility for Modvat credit of duty paid on 'Chlorine containers'

Analysis:
The issue in this appeal revolves around the eligibility for Modvat credit of duty paid on 'Chlorine containers'. The Revenue argues that since these containers are durable and for repeat use, their value should not be included in the assessable value of the final product 'Chlorine', thereby disqualifying Modvat credit on the duty paid for these containers. On the contrary, the appellant asserts that the price of containers is indeed included in the price of chlorine, as evidenced by the higher price charged when using appellant-owned containers compared to buyer-supplied containers. The appellant's counsel explains that the price of durable containers is amortized and included in the sale price, which is a common commercial practice. The appellant contends that the revenue authorities erred in not accepting this commercial principle and wrongly assumed that the entire value of the container must be added to the sale price at each transaction. The appellant highlights that by including the container cost in the price of chlorine, they are entitled to Modvat credit on the duty paid for the containers.

Analysis:
The learned DR, representing the Revenue, argues that the inclusion of packing cost in the final product price should encompass the entire price of the packing material, not just a portion of it. Moreover, the DR raises concerns about the revenue risk associated with the appellant's method, stating that failure to use a container for 300 trips could result in revenue loss as the duty paid on the container is fully claimed as Modvat credit upon receipt, without any proportional reversal if the container is not fully utilized. However, the appellant's counsel rebuts this by emphasizing the meticulous monitoring of container usage due to their high value and the nature of the goods stored in them.

Analysis:
The legal requirement under Rule 57A is that the cost of packing material should be included in the assessable value of the final product. The judgment underscores that the commercial practice regarding durable and returnable containers involves including only a portion of the total container value in each sale price, typically through amortization. This practice is deemed necessary to prevent exorbitantly high sale prices that could impede trade. The judgment emphasizes that tax law should align with normal commercial practices and not contradict them. Therefore, the revenue authorities cannot dismiss the commercial practice of including container costs in the sale price. Consequently, the appellants are deemed entitled to claim Modvat credit on the duty paid for the chlorine containers.

Analysis:
In conclusion, the appeal is allowed in favor of the appellants, with any consequential relief granted to them. The judgment affirms the appellants' right to claim Modvat credit on the duty paid for 'Chlorine containers', emphasizing the alignment of tax law interpretation with commercial practices.