1993 (1) TMI 171 - AT - Central Excise

Summary

Issues:
1. Admissibility of Modvat credit for HDPE bags/sacks used in packing cement.
2. Classification of HDPE bags/sacks under Modvat Scheme.
3. Eligibility of HDPE bags/sacks for Modvat credit.
4. Connection of HDPE bags/sacks with the manufacture of cement.

Admissibility of Modvat Credit:
The Collector of Central Excise and Customs, Bhubaneswar appealed against the order allowing Modvat credit to M/s. Orissa Cement Limited for HDPE bags/sacks used in packing cement. The Collector argued that the amendment through Notification No. 35/90 did not affect cement's position as an input under Rule 57A. The cost of packing materials like HDPE bags/sacks was not included in the cost of cement charged at a specific rate of duty. The Collector contended that the Notification was clarificatory and did not exclude HDPE bags/sacks from Modvat credit eligibility.

Classification under Modvat Scheme:
The appeal raised concerns about the classification of HDPE bags/sacks under Chapter 63, which was not covered under Rule 57A. The Central Board of Excise and Customs had earlier clarified that HDPE bags/sacks were not connected to cement manufacture and were not considered inputs for Modvat credit. However, it was argued that subsequent instructions classified these bags under Chapter 39, making them eligible for Modvat credit. The respondents received HDPE bags under Gate Passes showing classification under 3923.90, supporting their eligibility for Modvat credit.

Eligibility for Modvat Credit:
The appeal questioned the eligibility of HDPE bags/sacks as inputs for Modvat credit, citing Circular F. No. 261/25/1/88-CX. 8, which excluded bags made from plastic strips or tapes from the definition of inputs. However, the Tribunal disagreed, stating that packing materials like HDPE bags were essential for cement manufacturing and eligible for Modvat credit. The Notification excluding certain bags from Modvat benefit implied that HDPE bags were initially eligible.

Connection with Manufacture of Cement:
The authority of Circular F. No. 261/25/1/88-CX. 8 was cited to argue that HDPE bags/sacks were not linked to cement manufacturing and thus not eligible for Modvat credit. The Tribunal rejected this view, emphasizing that packing cement in bags was part of the manufacturing process. The bags were considered essential for cement production and, therefore, eligible for Modvat credit. The Tribunal upheld the order allowing Modvat credit for HDPE bags/sacks used before the issuance of the relevant Notification.

Cross-objection:
The respondents filed a cross-objection seeking to uphold the order granting Modvat credit for HDPE bags/sacks. As the Tribunal dismissed the Department's appeal, the cross-objection was automatically disposed of, maintaining the favorable decision for the respondents.

This judgment addressed the admissibility of Modvat credit for HDPE bags/sacks used in packing cement, analyzing their classification, eligibility, and connection with the manufacturing process. The Tribunal upheld the order allowing Modvat credit, emphasizing the essential role of packing materials in cement production and rejecting arguments against their eligibility. The decision clarified the criteria for Modvat credit and affirmed the respondents' right to claim credit for HDPE bags/sacks used before the relevant Notification was issued.