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TMI Blog1997 (8) TMI 265X X X X Extracts X X X X X X X X Extracts X X X X ..... alcutta-II, allowing Modvat credit of Rs. 15,77,912.00 on glass bottles taken during the period April 1994 to May 1994 and disallowing Modvat credit of Rs. 13,83,520.00 on plastic crates during the same period (April 1994 to May 1994) and confirming recovery of the said amount since the Modvat credit has been utilised. Hence the Revenue has filed Appeal bearing No. E/195/97 on direction of the C.B.E. & C. against allowing Modvat credit of duty paid on glass bottles and the assessee Bengal Beverages (a unit of Black Diamond Beverages) has filed Appeal bearing No. E/113/96 (hereafter referred to as Calcutta-II case). 1.4 Final product in both cases is "areated waters". 2.1 Show cause notice in Calcutta I case states that till 28-2-1994, the final product was assessable to specific rates of duty. As per Board's Circular F. No. 267/30/88-CX. 8, dated 28-6-1988, the Modvat credit of duty paid on glass bottles was available for payment of duty on aerated waters. Nature of rate of duty was changed from `specific rate' to ad valorem rate w.e.f. 1-3-1994. It was therefore alleged in the show cause notice dated 29-8-1994 that in terms of exclusion clause (iii) under Explanation t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecting from your buyers any advances, deposits or other valuable securities? Ans. "Yes, we collect certain amounts from every buyer of ours as deposit for the quantity of glass bottles or crates, containers which are durable and returnable. The deposits are returned to the buyer on return of the containers." (ii) Q. Are you collecting the cost of packing charges in the declaration made in the price list? Ans. "Our containers namely glass bottles and crates have a limited life and depending on their life/rotation, the price is loaded to cover this cost." It was, therefore, alleged from the above that the assessee as well as its customers treat both bottles and crates as containers of durable nature and returnable by the buyer to the assessee. 3.1.2 It was pointed out in the show cause notice that `aerated waters' attains its fully manufactured and marketable condition when the same is bottled and capped. Hence it was alleged that "crates" cannot be called a container or packing materials in regard to the manufacture of aerated waters as these are used for facilitating handling within the factory and for post-manufacturing movements/transport. 3.1. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I also find it pertinent to mention that the issue of eligibility of Modvat credit on plastic crates and glass bottles, was under consideration of the Department since admissibility of Modvat credit on them was not free from doubt. The Department ultimately after examining the issue of admissibility of Modvat credit on plastic crates and glass bottles in the Industries manufacturing aerated water held that benefit of Modvat credit on glass bottles is admissible under Rule 57A which supports my above contention. I also rely on a Trade Notice No. 94/GL-59/CE/PRO/Cal-II/95, dated 1-11-1995 issued from the Calcutta-I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n included in the assessable value of aerated waters on pro rata basis depending on the life and rotation of bottles till these are completely lost, the ld. Commissioner has observed as follows : In this connection I like to observe that as per universally accepted norms of accounting, cost of packaging material does not form part of manufacturing cost and therefore if in fact such cost is included in manufacturing cost it cannot represent a cost as packaging material but only as an overhead or material cost (input cost). For the purpose of Central Excise, therefore, inclusion of proportionate cost of packaging material in manufacturing cost cannot be considered to represent `cost of packaging material as such in assessable value'. (iii) Glass bottles being of durable nature and returnable, statutorily cost of such packing cannot represent any part of assessable value in view of the provisions of Section 4(4)(d)(i). (iv) "It is common knowledge that the proportionate cost of bottles included in the manufacturing cost of aerated water represent only the depreciation value based on repeated use, life period, average breakage etc. of such bottles. Moreover, the appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unal)], it has been held that plastic crates used for transportation of aerated waters will not qualify for benefit of Modvat credit. This judgment of a ld. Single Member denies Modvat credit on crates on the ground that the expression `packaging materials' does not cover containers, boxes etc. We state, with resp- ect, that it is contrary to the submissions of the ld. SDR, and find- ings of the Commissioner (Appeals) as also against Madras High Court's Pond's India judgment reported in 1988 (38) E.L.T. 351. 6.1 Ld. Advocate, Shri K.K. Banerjee on behalf of the appellant assessees makes the following submissions : (i)(a) The Board has clarified by a circular dated 13-9-1995 quoted in the impugned order passed by the ld. Commissioner (Appeals) : "credit of duty in respect of glass bottles/crates can be allowed only if the value of such bottles is included in the value of the product viz. the bottles containing aerated waters. The question of fact to be ascertained in each case of claim for Modvat". Ld. Advocate submits that in the face of this clarification, Central Excise officers are only required to look into the factual position whether the cost of bottles/crates has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... servation of Commissioner (Appeals), Chennai while accepting pro rata cost inclusion as the correct method. (d) As regards the finding that in view of statutory provisions of Section 4(4)(d)(i), it is immaterial whether the cost of durable and returnable packing is actually included in the assessable value because statutorily such a cost cannot be included and therefore, it should be held that no such cost is included, submits the ld. Advocate, ld. Commissioner ignores the beneficial and the optional character of the Modvat scheme. It is also submitted that the provisions of clause (iii) of the Explanation are being mis-read. (e) Ld. Advocate also submits that Tribunal's decision in Shreeram Drink's case (supra) is in the context of the fact that the appellant therein did not include (emphasis supplied by the ld. Advocate) the cost of packing in the assessable value of the excisable final product. It is in that context that the Tribunal has observed in that case that after "getting the beneficial treatment under Section 4(4)(d)(i), they cannot commit a volte-face when confronted with the provisions of Rule 57A". He submits that Shreeram Drinks (supra) is not applicable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such situation in the existing Clause (iii) of the Explanation to Rule 57A. 7.1.2 On the contrary, the words employed in the Explanation [Clause (iii)] correctly and adequately fulfil the object of Modvat scheme. It is well-known that the object of the scheme is to avoid cascading effect of duty i.e. duty upon duty, if the final product is dutiable. In order to achieve that purpose, duty on input is allowed as a Modvat credit. By virtue of Section 4, "cost of packing" except that of durable and returnable packing is liable to be included in the value of the excisable goods. But judgments of the Apex Court have ruled that only cost of such packing which is necessary for putting the goods in the wholesale market at the factory gate is to be included. This is a question of fact to be determined in each case. Further, even in the event of packing of durable nature, returnability of packing is again a matter of agreement between a manufacturer and his customers which would again vary from case to case. Hence the need for a case by case determination rather than a general debarring provision. 7.1.3 Provisions of Modvat credit scheme are optional, as is clear from Rule 57G th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd costing practice and duly certified by a Chartered Accountant. To adopt any other method would be an impractical proposition and would lead to ridiculous results. If the cost of an input in its first use in a final product is fully reflected, the value of the final product in which an input is used for the first time would be exceptionally high, whereas the final product utilising that input on the latter's second or subsequent use would have a very low value because second or subsequent use of such an input would be without any cost inasmuch as its full cost has already been exhausted on its first use. Same batch of final product would have different costs/values depending upon the first use or subsequent use of an input in a batch of final products. It will create problems of segregation of inputs and many other consequential problem. Certainly an impractical result. 7.3 Finally we agree with ld. Advocate that we have already held in 1997 (91) E.L.T. 422 (Tribunal) that `crates' are packaging materials, being containers of bottles of aerated waters, entitled to the benefit of Modvat credit under Clause (b) since Clause (iii) has not application in this case. Certificates ..... X X X X Extracts X X X X X X X X Extracts X X X X
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