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TMI Blog1991 (4) TMI 223X X X X Extracts X X X X X X X X Extracts X X X X ..... tory are laminated and printed with the details of the medicines and also bear the name of the manufacturer directions for use etc. These foils, on their receipt in their factory were entered into RG 23 register and credit taken, thereafter, they were sent for conversion into sachets by the outside job workers by virtue of the permission granted under Rule 57F. It was alleged by the Asstt. Collector that Modvat rules do not permit packaging materials, which are not ready for use for packing the final product. In this view, he held that only the sachets which are ready to use for packing the medicaments should have been declared as input in the declaration filed under Rule 57G. The Assessee has also not paid duty on the sachets because of the permission granted under Rule 57F. Hence, the Modvat credit taken on printed aluminium foils is not entitled to them. In the adjudication proceedings held by the Asstt. Collector, he confirmed the show cause notice issued and directed the riversal of the credit amounting to Rs. 28,71,946.94. When the matter was taken up in appeal by the assessee, the Collector (Appeals) allowed the assessee's appeal on the ground of time bar but dismissed their ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... If the wordings used in Rule 57A is only a package or packaging, the Asstt. Collector's interpretation could be sustainable. But the wordings used in Rule 57A refers to packaging materials which could mean materials used for bringing into existence a package or packaging. Aluminium foils printed and embossed with details which are only of particulars use for the appellants' final product, medicaments, are nothing but packaging materials used for the purpose of packaging of the medicaments. However, these printed foils have to be converted into sachets for packaging the medicaments and the medicaments cannot be put in the foils in the condition in which they are received and supplied to the customers. Hence conversion of a sachets does not and should not be construed to mean that the aluminium foils ceased to be packaging materials. When there is no specific requirement that packaging material should be brought only in a ready to use condition as laid down in the Rule, the Asstt. Collector has traversed beyond the scope of the rules and his findings are not legally tenable. In the order of the Collector (Appeals) he contended that Rule 57F(2) contemplates sending of inputs as such o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 (32) ECR part II page 25C and advanced his arguments in support of the clarification given by the Board. He contended that Rule 57A no doubt, refers to packaging materials. Modvat Scheme contemplates receipt of such materials and usage of the same in the final product as such. Here, the admitted position is that they have converted the foils into sachets by the out side job workers and these sachets are also a distinct commodity attracting separate excise levy. Hence, the aluminium foils brought in by the assessee could only be said to have been used in or in relation to the manufacture of the final product viz. sachets. It was open to them to send the aluminium foils under Rule 57F for conversion into sachets and after payment of duty on sachets could take credit of duty paid on sachets for the packaging of the medicaments. In a case, where a distinct product classifiable under a separate Tariff heading or sub heading comes into existence on account of conversion of aluminium foils, it cannot be construed that the aluminium foils have been used in or in relation to the manufacture of medicaments but to be construed as used only in or in relation to the manufacture of sachets. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... benefit of Modvat credit. He also sought to distinguish the decision of the South Regional Bench in the case of Ponds (I) Ltd. (supra) by pointing out that there, Modvat credit was claimed in respect of plastic granules, which were converted into containers by outside job workers and such granules cannot be equated with aluminium printed foils of the type clearly identifiable as packaging materials for the specific item and that they could be used as packaging materials only for medicaments and that too by the particular manufacturer. He, therefore, stated that the decision of the South Regional Bench cited by the Ld. SDR would not be applicable. 7. After hearing both the sides, we identify the following issues for purpose of decision in both the appeals : (i) Whether the item 'packaging material' referred to in the explanation to Rule 57A could be restricted only to boxes, packets, sachets, etc. which are in ready to use condition and not to item 'aluminium foils' printed and laminated with particulars of the packed product; (ii) whether Rule 57F(2) could be applied only in the case of inputs in the nature of raw materials or components sent out for conversion of the final ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aterials are unable to get the Modvat credit in respect of the exempt ready to use packing article themselves, they are wanting to have the modvat credit for duty paid on raw materials for making such packaging materials by bringing such raw materials into their factory, taking credit of the duty paid on such raw materials, thereafter sending these credit paid raw materials to job workers under Rule 57F(2) for converting them into ready to use packaging articles and bring such packaging materials back into their factory. This demand of the assessees is not admissible, as Rule 57A does not allow modvat credit in respect of raw materials for packaging materials." 10. From the above, it is clear that the Board had not considered the meaning of the packaging materials as indicated in Rule 57A; but have construed that Modvat credit would be admissible only for the duty paid on such ready to use packaging c materials but not on the raw materials such as Plastic granules, steel sheets/strips etc., used for making packaging materials. The Board had also observed that this controversy has cropped up only with respect to packaging materials like plastic containers and cardboard cartons eith ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cannot be construed as packaging materials by any stretch of imagination. We are required to interpret the term 'packaging material' as an input for the final product and not the inputs going to make the packaging material itself. In this view of the matter, we hold that the appellants are entitled to Modvat credit only in respect of plain paper and aluminium foil treating them as 'packaging materials' being the input for the final product as per explanation to Rule 57A. In respect of the other inputs such as printing ink and other chemicals used for lamination, they are not eligible for Modvat credit being not identifiable as packaging materials. Accordingly, we direct the Asstt. Collector to restrict the demand only to the extent of Modvat credit involved on inputs like printing ink and other substances used for lamination and printing but allowing the modvat benefit in respect of duty on aluminium foils and paper." 11. We have no reason to take a different view now especially when the material received by them is printed aluminium foils, which could be clearly identifiable as the packaging materials for the medicaments manufactured by the assessee and cannot be used as otherwi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aterial and send them to outside for conversion into packing material on job work basis. The clarification is silent about those who gets the basic packaging materials and convert them within the same factory of production of the final product. In any case, we are of the view that the test that should be applied is, whether the material is identifiable as a packaging material and its normal usage is for packing purposes and it has been brought only for the packaging purposes. If this test is satisfied, neither the Rule 57A could be said to deny the benefit nor the Rule 57F(2) could be refused in such cases. Moreover, we find considerable force in the arguments of S/Shri Hidayatulla and Nankani that packing and labelling is construed to be manufacture of the final product. Hence, aluminium foils sent out for conversion into sachets for packing the medicaments would come within the purview of manufacture of the final product viz. medicaments. In this view of the matter, Shri Mondal's arguments based on the Board's circular does not pursuade us to take a different view than the one already taken by us in our Order No. 1764/90/WRB dated 22-10-1990 in the case of M/s. Parle Products Pvt ..... X X X X Extracts X X X X X X X X Extracts X X X X
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