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TMI Blog1989 (6) TMI 226X X X X Extracts X X X X X X X X Extracts X X X X ..... icable in their case. (ii) It wrongly mentions that they had urged that polypacks were generated in the process of making the final product. They never said so. (iii) Rule 57J and Notification No. 351/86 which unequivocally allows the enjoyment of the credit as prayed for by them had not been correctly applied. (iv) The Assistant Collector had held in the operative part of his order that the polypacks are intermediate products, but disallowed credit on the grounds that they are exempt from duty. This cannot deny Modvat Credit within law vide Notification No. 351/86. (v) The Collector (Appeals) failed to traverse all the grounds urged in the appeal petition which led to denial of natural justice. (vi) The Assistant Collector had already made up his mind to deny the credit as the notice issued to them was a show cause notice and adjudication order rolled into one. The Collector failed to appreciate this fact. (vii) The Collector failed to appreciate the fact that other assessees of the Collectorate were enjoying Modvat Credit facilities on granules sent outside for conversion by job workers. (They submitted evidence in this regard by way of a photocopy of a challan). 3. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of duty from two manufacturers in identical situations has been adversely commented upon by the Court. In answer to a question from the Bench as to how the polythene granules used in the manufacture of polypacks (packaging material) can be considered to be used in the manufacture of their finished product, detergent powder. Shri Chakraborty, the learned Consultant for the appellants cited the decision of the Tribunal in Hindustan Lever v. Collector of Central Excise, Bombay (reported in 1984-ECR-2006-CEGAT) wherein processed vegetable oil was held to be eligible for the exemption granted to it if used for the manufacture of soap, notwithstanding the fact that the oil was first converted to vegetable tallow which was exempt from duty. He handed over a Photostat extract of the above-said decision. He also referred to a clarification issued by the Government in respect of processed vegetable non-essential oil used for manufacture of paints though an intermediate product, Alkyd Resin, which is exempt from duty is first obtained. This clarification contained in their letter No. 56/24/70-CX-3 dated 12-7-1971 was referred to by Allahabad High Court in their judgment in Nagrat Paints ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ythene bags are manufactured from duty-paid polythene granules supplied by the Assessee and neither the granules nor the polythene bags are produced intermediately in course of manufacture of the final product (OSAA). In other words, the polythene bags are final and independent product made from duty-paid granules and used as packaging material of the said final dutiable product (OSAA). Hence the provisions under Notification No. 351/86 dated 30-6-1986 as amended are not applicable in the instant case. Without prejudice to what has been stated hereinabove and assuming the polythene bags as intermediate product of OSAA it appears that your application would be liable to rejection as per provision laid down in the proviso to Rule 57D(2) of the Central Excise Rules, 1944. In view of the above, you are, therefore, requested to show cause as to why your application should not be rejected on the ground as stated hereinabove...." The show cause notice has been assailed as having rolled the adjudication order and the notice into one with the preformed desire to deny the credit. Reliance has been placed by the appellants on the judgment of Calcutta High Court in Raghunandan Jalan v. Col ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e party to whom it is issued as to what is alleged against him so that suitable defence could be set up by him. The notice in question did nothing more than this and the proceedings original as well as the subsequent appellate one, do not deserve to be struck down as invalid or illegal as made out in the appeal. We are in agreement with the appellants, however, as regards their objection to the decision by the Assistant Collector disposing of their application quoting Rule 57D(2). Not only has the Assistant Collector specifically referred to the polythene bags as intermediate goods but his reliance on Rule 57D(2) for rejecting the appellant s application also points to the same conclusion since Rule 57D applies only to intermediate goods. Sub-rule (2) of this Rule lays down that credit shall not be denied or varied on the ground that any intermediate had come into existence during the course of manufacture of the final product and that such intermediate product is exempt from duty. The apparent paradox of a provision granting a facility being applied to reject the application is due to the proviso laying down that the intermediate products are used within the factory of production. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cause the products involved in the said cases arose from the raw materials and marked an intermediate stage in the course of manufacture of the final products because such intermediate stage products were themselves converted into the final products. Such is not the case with the polythene bags in the present matter which is not converted into the final product in order to be reckoned as intermediate product. 10. It will be necessary to examine certain provisions in Central Excises and Salt Act and the Central Excise Rules to see if the polythene bags can be considered to be intermediate products in the manufacture of detergent powder. Section 2(f) defines manufacture as including any process incidental or ancillary to the completion of a manufactured product. This does not assist the case of the appellants as the process of manufacture of detergent powder has already been completed before the bags are put to use. 11. Section 4(4) (d) defines value of goods as including the cost of packing where the goods are delivered at the time of removal in a packed condition. Here the special inclusive definition of value is applicable only in this specific context and for this purpose and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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