1998 (9) TMI 220 - AT - Central Excise

Summary

Issues:
1. Whether Modvat benefit was available for duty paid flattened tin containers used for packing biscuits.
2. Whether the demand in the show cause notice was barred by time.
3. Interpretation of the term "packaging materials" in the context of Rule 57A of the Central Excise Rules.

Analysis:

Issue 1:
The appellant, engaged in biscuit manufacturing, used duty paid flattened tin containers for packing biscuits. The dispute arose regarding the availability of Modvat credit for duty paid on these containers during the period from 2-3-1987 to 31-3-1988. The appellant claimed Modvat credit, but a show cause notice was issued stating that the benefit was not available due to exclusion clauses in the Central Excise Rules. The Assistant Collector confirmed the demand, which was upheld by the Collector (Appeals), leading to the present appeal.

Issue 2:
The appellant argued that the show cause notice issued on 31-10-1988 was time-barred, as it was issued after the expiry of more than six months prior to the mentioned date. The Assistant Collector did not invoke the proviso to Section 11A of the Act, and no allegations attracting the proviso were made. Therefore, the demand in the show cause notice was considered barred by time, leading to the failure of the entire demand on this ground.

Issue 3:
The interpretation of the term "packaging materials" under Rule 57A was crucial. The rule allows Modvat credit for specified inputs used in manufacturing final products. The exclusion clauses (ii) and (iii) specify conditions under which certain materials are excluded from the definition of "inputs." The debate centered on whether duty paid flattened tin containers used for packing biscuits fell under the definition of "packaging materials." The appellant contended that the term should be narrowly construed to include only raw materials for packaging, not the containers themselves. However, the department argued for a broader interpretation encompassing both raw materials and ready-made containers.

The judgment referred to previous decisions, including the Madras High Court case and the Larger Bench decision, emphasizing a wider interpretation of "packaging materials." Ultimately, the Tribunal agreed with the broader interpretation, concluding that the containers used by the appellant, which enjoyed duty exemption in the preceding year, did not qualify as "inputs" for Modvat credit. Despite the ruling against the appellant on this point, the Tribunal found in favor of the appellant due to the time-barred nature of the show cause notice.

In conclusion, the Tribunal set aside the impugned orders, holding that the show cause notice was time-barred and allowed the appeal in favor of the appellant.