1997 (8) TMI 265 - AT - Central Excise

Summary

Issues Involved:
1. Disallowance of Modvat credit on glass bottles.
2. Disallowance of Modvat credit on plastic crates.
3. Interpretation of Rule 57A and Section 4 of the Central Excise Act.
4. Inclusion of cost of packaging materials in the assessable value.

Issue-wise Detailed Analysis:

1. Disallowance of Modvat credit on glass bottles:
The Modvat credit of Rs. 49,69,619.81 on glass bottles was disallowed by the Commissioner (Appeals) in the Calcutta I case, based on the exclusion clause (iii) under Explanation to Rule 57A. It was argued that glass bottles, being durable and returnable, could not have their cost included in the assessable value of aerated waters under Section 4(4)(d)(i) of the Act. The credit taken during the period 26-2-1994 to 30-4-1994 was deemed inadmissible, even for the specific duty period of 26-2-1994 to 28-2-1994, as the bottles were used for a product launched after 1-3-1994.

2. Disallowance of Modvat credit on plastic crates:
In the Calcutta II case, the Commissioner of Central Excise allowed Modvat credit on glass bottles but disallowed it on plastic crates. It was argued that crates were used solely for transportation and not as inputs in the manufacturing process of aerated waters. The Commissioner concluded that plastic crates were not specified items under Rule 57A for Modvat credit, as their use was limited to transportation, not manufacturing.

3. Interpretation of Rule 57A and Section 4 of the Central Excise Act:
The Tribunal analyzed the language of Clause (iii) of Explanation to Rule 57A, which excludes packaging materials whose cost is not included in the assessable value. The Commissioner (Appeals) had interpreted this clause to mean that the cost of durable and returnable packing could not be included under Section 4. However, the Tribunal found this interpretation incorrect, emphasizing that the Modvat scheme aims to avoid the cascading effect of duty and that the cost of packing, even if durable and returnable, could be included in the assessable value at the manufacturer's discretion.

4. Inclusion of cost of packaging materials in the assessable value:
The Tribunal agreed with the appellant's argument that the cost of glass bottles and plastic crates was included in the assessable value on a pro rata basis, as certified by Chartered Accountants. This inclusion was necessary to avoid impractical results and ensure consistency in the valuation of final products. The Tribunal also referenced the Board's circular dated 13-9-1995, which clarified that Modvat credit could be allowed if the cost of bottles was included in the assessable value, binding on Revenue officers.

Conclusion:
The Tribunal dismissed the Revenue's appeal and allowed the assessee's appeals, concluding that both glass bottles and plastic crates qualified for Modvat credit as their costs were included in the assessable value of aerated waters. The Tribunal emphasized the correct interpretation of Rule 57A and the practical inclusion of packaging costs, ensuring the Modvat scheme's purpose of preventing duty cascading was upheld.