1990 (10) TMI 216 - AT - Central Excise

MODVAT Credit - Plain paper and aluminium foil being packaging material to be considered as inputs

Summary

Issues Involved:
1. Non-filing of declaration in the prescribed proforma.
2. Inadmissibility of credit for raw materials used in intermediate products.
3. Non-inclusion of certain inputs in declarations.

Detailed Analysis:

Issue 1: Non-filing of Declaration
The Assistant Collector did not adjudicate on this issue due to a stay order from the Bombay High Court on the recovery of Rs. 50,06,431.18. Thus, this issue was not addressed in the current appeal.

Issue 2: Inadmissibility of Credit for Raw Materials Used in Intermediate Products
The appellants, manufacturers of biscuits and confectionery, claimed modvat credit for inputs like M.G. Poster paper, printing inks, and plain aluminium foils. The Department argued these inputs were used to produce intermediate products like printed/laminated papers and foils, which are exempt from duty, thus making the modvat credit inadmissible. The Collector (Appeals) allowed credit only for refined coconut oil, rejecting others.

The appellants argued that their products could only be sold when wrapped in printed/laminated materials, which are essential for marketing under the Packaged Commodities Rules. They cited several judicial precedents, including the Supreme Court's decision in Eastend Paper Industries, which held that materials necessary for making goods marketable are components of the final product. They contended that inputs used for creating ready-to-use packaging materials should be eligible for modvat credit.

The Department countered that printed laminated foils and papers are not intermediate products but final products used for packaging and are exempt from duty. Therefore, inputs used for these cannot avail modvat credit.

The Tribunal found merit in the appellants' argument regarding plain paper and aluminium foils, recognizing them as packaging materials under Rule 57A. However, it held that printing inks and chemicals for lamination could not be considered packaging materials. The Tribunal directed the Assistant Collector to allow modvat credit for plain paper and aluminium foils but not for printing inks and lamination chemicals.

Issue 3: Non-inclusion of Certain Inputs in Declarations
The appellants did not adequately describe chemicals like mono acid calcium phosphate and sodium met sulphate in their declarations. The Department did not dispute their use in manufacturing biscuits but denied credit due to incomplete descriptions.

The Tribunal held that statutory benefits should not be denied on technical grounds if the chemicals were indeed used in production and subsequently described in detail. It emphasized that the benefit should be extended if no malafide intention was evident. Thus, the Tribunal set aside the demand on this ground and allowed modvat credit for these chemicals.

Conclusion:
The appeal was disposed of with directions to allow modvat credit for plain paper and aluminium foils used as packaging materials while denying it for printing inks and lamination chemicals. The Tribunal also allowed modvat credit for chemicals used in manufacturing biscuits despite initial incomplete descriptions in declarations.