1. By his Order No. 480/Cal/84, dated 10-4-1984, the Collector of Central Excise (Appeals), Calcutta decided that screw caps used or Horlicks bottles manufactured by M/s. HMM Limited, Calcutta were very much inputs in terms of Notification No. 201/79-C.E., as well as being components for the manufacture of the finished product. This was contrary to the order of the Superintendent of Central Excise, dated 5-1-1984 who observed that screw caps fitted on Horlicks bottles were not components. The Collector (Appeals) held that the packing of the Horlicks in bottles was not complete unless it was capped. Since tariff item IB central excise related to prepared and preserved foods put in unit containers and ordinarily intended for sale, the composition of packed Horlick bottles is not just Horlicks powder but also the metal screw caps, bottles, labels, seals, etc. Materials used in bringing a substance up to the excisable stage can safely to considered inputs.
2. The learned counsel for the department Mr. Sundar Rajan argued that a screw cap can never be a component part or an ingredient of the contents of these goods, meaning the Horlicks, which is a health drink.
He quoted 1979 Vol 43 STC page 141, in which the High Court at Allahabad decided that a gramophone needle is not a part of a gramophone even though it is necessary for the functioning of the gramophone. Even though the gramophone cannot run without the needle, the needle is still not a part of the gramophone and is not a component part of the gramophone. In 1969 Vol 23 STC page 306, the Allahabad High Court decided that a diesel engine is not a part of a motor car unless it has been specially adapted for such a motor car. In 1977 (40) STC page 437 in respect of copper wire, the High Court decided that a copper wire is not a component part of a transformer. Similar rulings were given by other High Courts in 1964 (15) STC page 734, 1980 (45) STC page 229, and by this Tribunal in 1985 (19) E.L.T, page 96. The fact that the goods under item IB have to be sold in unit containers, and that the unit containers have to have the screw caps to retain the finished product, namely, Horlicks, will make no difference to his proposition. The item descriptions are only for the purpose of levy of duty for the particular item. They do not lend support to the party's proposition that the screw cap forms an ingredient or component of the finished product, the malted milk drink. At the material time, goods falling under item 68 must be used as raw materials or component parts of the finished goods. No body can suggest that a screw cap on the bottle forms a raw material or component part of the finished goods Horlicks milk powder.
3. The learned counsel for M/s. HMM Ltd., said the D. 3 was filed on 13-10-1982 and the period of dispute was for October, 1982 and later.
Notification No. 201/79-C.E. allowed credit of duty paid on the inputs if the inputs go as raw materials and component parts. It is not necessary that the raw material should form a physical ingredient only of the finished goods. It can satisfy the demand of the notification if it forms a part of the package presented for assessment before the Central Excise proper officer. The goods in their case are prepared and preserved foods ordinarily put up for sale in unit containers. In 1982 E.L.T. 379 order in review No. 15-17 of 1982 dated 14-1-1982, the Government of India gave a decision that will go in their favour. He said that the 1979 decision of the Allahabad High Court on the gramophone needle is not applicable because the needle does not form a part of the gramophone. In 1983 E.L.T. 1263 regarding M/s. Ballarpur Industries, the Bombay Bench of the Tribunal held that sodium sulphate used in the manufacture of paper was exempted from duty under Notification No. 201/79-C.E. which exempts excisable goods in the manufacture of which, goods falling under item 68 have been used, to the extent of duty paid on the goods described as inputs. In 1984 E.C.R. 1864 in respect of Universal Cables Ltd., the Tribunal ruled that when wooden drums are used for winding electric cables, set off under Notification No. 178/77-C.E. from the duty paid under item 68 on the wooden drums will be admissible. The Tribunal in 1984 ECR 2080 in the case of Paper Products Ltd, Bombay in respect of Notification No.201/79-C.E. also ruled in a similar spirit. In 1984 E.C.R. 1404, the Bombay Tribunal gave a judgment that duty paid on parts and accessories of motor vehicles were available for credit under Notification No.201/79-C.E. He reiterated that the Collectorate was bound by the Government of India's decision in 1982 E.L.T. 739 which was given in respect of their factory, M/s. Hindustan Milk Manufacturers.
4. We are not able to see the relevance of the cases quoted by the two sides. None of these, Court, Tribunal and Government of India judgments was a judgment on whether a metal screw cap formed a raw material or a component part of the contents like Horlicks. The 1982 E.L.T. 739 decision of the Government of India that the learned counsel for M/s.
HMM Ltd. said should till the scales in his favour was about whole milk powder and skimmed milk powder put up in cloth or polyethylene bags for storage and captive consumption on regeneration of liquid milk and manufacture of milk products. Duty was demanded by the central excise on the whole milk and skimmed milk. The dispute was of a very different kind from this order and involved Notification No. 145/73, not the notification we have with us. There were other adjudications that he sought to reinforce his arguments with, like the one of M/s. Ballarpur Industries was about Notification No, 201/79-C.E. before it was amended by Notification No. 105/82-C.E. This ruling would have been more in line with our problem but for the fact that the period of this dispute was after the amendment introduced by Notification No. 105/82-C.E.which brought about the change in Notification No. 201/79-C.E. The Warner Hindustan Limited, Hyderabad decision of the Madras Tribunal was indeed of Notification No. 201/79-C.E., but this again was for a period before the amendment brought in by notification No. 105/82-C.E., and considered goods like pyridine, alpha picoline, beta picoline and gamma picoline and the raw materials that went into their production. The Tribunal decided that the monthly accounts presented by the factory of the amount of duty paid on the raw materials should form the basis of calculations to determine the amount of duty paid on the raw materials.
The judgment in 1984 ECR 1864 by the Tribunal considered wooden drums used for winding electric wires and cables; it held that set off should be given of the duty paid on the wooden drums in terms of Notification No. 178/77--C.E. This dispute related to a period even before Notification No. 201/79-C.E., (Notification No. 178/77-C.E. was the forerunner of the later Notification). Another order quoted by the learned counsel for HMM Limited, namely, 1984 ECR 2080 in respect of M/s. Paper Products Limited considered the question whether concession under Notification No. 201/79-C.E. should be given when the goods are exempted partially by another notification. It does not help HMM Limited. 1984 ECR 1404 settled a dispute that arose when Notification No. 166/79-C.E. was rescined and replaced by another notification; the subject was proforma credit under Rule 56A of the Central Excise Rules.
The Tribunal ruled that the procedure prescribed in notification No.201/79-C.E. was substantially the same as the procedure in Rule 56A, and that even after its rescission, Notification No. 166/79-C.E.continued to be valid by virtue of Notification No. 201/79-C.E. We can see no support to HMM Ltd.'s case in this decision.
5. Similarly, the cases quoted by the learned Mr. Sunder Rajan on behalf of the department have educated us, but they do not ratify the department's case by direct induction. As empirical analogies they are valuable indeed, but we need a reference point or case that says a metal screw cap forms a raw material or component part of Horlicks assessable under item IB, CET. We will, therefore, have to decide this contention on its own materials.
6. Notification No. 201/79-C.E. at the relevant time, that is to say, October, 1982, and later, read 'In exercise of the powers conferred by Sub-rule (1) of Rule 8 of the Central Excise Rules, 1944, and in supersession of the notification of the Government of India in the Ministry of Finance (Dept. of Revenue) No. 178/77-CE dated 18th June, 1977, the Central Government hereby exempts all excisable goods (hereinafter referred to as "the said goods"), on which the duty of excise is leviable and in the manufacture of which any goods falling under item 68 of the First Schedule to the Central Excises and Salt Act, 1944 (1 of 1944), have been used as raw materials or component parts (hereinafter referred as "the inputs"), have been used, from so much of the duty of excise leviable thereon as is equivalent to the duty of excise already paid on the inputs.' 7. M/s. HMM Limited claim tbat the metal screw caps that they use on the bottles that contain the product Horlicks is a raw material or a component part of the Horlicks and must, therefore, be deemed to qualify for the exemption under this notification. They argue that item IB, CET under which the product falls has a nomenclature wording congenial to this interpretation, because it covers "Prepared or preserved foods put up in unit containers and ordinarily intended for sale, including preparations of vegetables, fruits, milk, cereals, flowers, starch, birds, eggs, meat, meat offlas, animal blood, fish, crustaceans or molluscs, not elsewhere specified." 8. This item does not seek to enlist only the product material which is the finished good but prescribes the package or the unit in which the product must be presented for assessment, or in which the assessing officer must assess the product. It is not enough for the factory to present the finished Horlicks to the assessing officer but it must present it in containers called unit containers ordinarily intended for sale. A container that does not represent a unit or quantity in which the product is ordinarily presented for sale is not covered by this heading. It is clear from this that the unit package, that is, a package in which the product is put up for sale, is the finished product in terms of item IB of the Central Excise Tariff. It follows naturally, runs the argument by HMM Ltd. that everything that goes into the formation of that unit or package as presented to the Central Excise Officer for assessment, form the subject goods and not just the contents or the packing. The two together/ jointly, in complement, must form the unit of the assessment. M/s. HMM Ltd. argue that they put up their Horlicks for sale in those unit containers, and in view of the legal prescription, cannot do it in any other way for the purpose of assessment under item IB. The metal screw cap forms an ingredient of the finished product covered by the heading and is, therefore, a component part of that product.
9. The fallacy of the argument is apparent from the fact that item IB covers prepared and preserved foods. Those foods may be vegetables, fruits, milk, cereals, meat or fish etc. etc. but the goods to be taxed are prepared foods or preserved foods. To say that the container forms an integral part of the finished product because of the wording of the item is to forget the fact that this description is in essence, true of all the items of the Central Excise Tariff to the extent that whenever assessment is to be made of anything listed in the Tariff, the packing also forms a part of the value, weight, etc. that is presented and assessed to duty. This is in accordance with the law as prescribed in Section 4 of the Central Excises and Salt Act, 1944, which provides that value- "Where the goods are delivered at the time of removal in a packed condition, would include the cost of such packing except the cost of the packing which is of a durable nature and is returnable by the buyer to the assessee." 10. We have to keep this cardinal principle of the Central Excise Law constantly before us. The facts of commercial practice also are that, except in very rare cases, goods are packed in one form or another and in varying units, quantities and sizes. There are different units of packing for different goods. Cigarettes, for example, have unit packings of 10 and 20 which are further packed in unit wraps of 200 or 500 or 1000 and so on. Soaps are similarly packed in a primary unit packing followed by a secondary unit packing and so on.
11. When item IB prescribes assessment of prepared and preserved foods in unit containers ordinarily presented for sale, it is only to shut out from the coverage of this heading, those foods not meant for sale such as those transported for further industrial uses or transported from one place to another. It is well-known that products like preserved foods or canned meat, canned fish or milk or vegetables are always solid commercially in containers of certain sizes; it is the goods described and packed in these containers that the law wanted to tax under this heading. It means nothing more than this. It means that it is the last stage of the prepared and preserved foods before their sale commercially that the law wanted to tax and not the earlier stages when the foods are in larger cans or containers that are not for sale, or when not yet packed.
The excisable goods that Notification No. 201/79-C.E. speaks of, therefore, can mean only the prepared and preserved foods and not the package in the unit containers. The weakness in HMM's arguments becomes visible when we consider the role of the bottle. It will not do to say that the bottle is a component part of the Horlicks. This question arose only because the producers stood to gain under Notification No.201/79-C.E. by an interpretation that held that metal screw cap of the bottle was a prepared and preserved food. But we are not convinced that this is the spirit of the notification or that its words imply or require such an interpretation.
12. Section 2(f) of the Central Excises and Salt Act, 1944, defines "manufacture" so as to include any process incidental or ancillary to the completion of a manufactured product. This has been interpreted to mean that packing the Horlicks powder into unit containers is a process incidental or ancillary to the completion of the manufacture of the Horlicks assessable under item IB. This is the excisable goods.
'Excisable goods' are defined in Section 2(d) as goods specified in the First Schedule as being subject to a duty of excise. The goods that are subject to a duty of excise under item IB are Horlicks packed in unit containers and ordinarily intended for sale. The manufacture must be understood as a manufacture of the goods as described in the law as subject to excise duty. Since the goods described in the law as subject to excise duty is the Horlicks in the unit container, manufacture must be taken to extend to the placing of the metal screw cap on the bottle.
Only then is a goods excisable under the First Schedule under item IB manufactured and completed. Therefore, the screw cap must be seen as a raw material/a component of the excisable goods Horlicks.
13. The above arguments would be true except for the fact that the excisable goods are not the bottled aggregate but the Horlicks. It would be a serious misconception to urgue that the excisable goods are the Horlicks in unit container. The excisable goods are the Horlicks.
Because the item nomenclature describes the target goods as being in unit containers cannot be taken as a basis for holding the containers or parts of the containers as being components of the Horlicks. The Horlicks as a product was finished and complete. It needed no further material or part to go into it to complete it. Its manufacture was complete and the screw cap did not add to that completion. Had it been packed in a paper or polythene packet, it would still be finished perfect Horlicks. The absence of the screw cap would be no difference to the taste or the smell of the powder or the beverage prepared from it. Or if the tariff definition were changed to speak only of prepared and preserved milkfood and the Horlicks we are discussing now is presented in very large packs, rather than unit containers; the finished goods would remain the same. Its quality, character and use would remain the same, notwithstanding the loss of the screw cap. The excusable goods is not the unit package containing Horlicks, but the Horlicks, the prepared and preserved food. And the shape/form in which the milkfood is, to be sold makes it necessary to be contained in a container of this nature-to be preserved, the container acting as a necessary aid or adjunct in the steps to keep it, Horlicks, preserved.
It is no accident that all the foods in the item, meat, milk, fish, eggs, fruit are foods that need preserving techniques more than others.
Articles like meat, milk, fish cannot keep for very long unless packed in manners such as these where they remain in more or less air tight states. Thus preserved/treated, they remain fresh and wholesome for vastly longer periods. This technique of preservation puts off the onset of spoliation considerably and acts as an aid to the storage and conservation of goods, articles that would otherwise be lost by attacks from bacteria, fungi, vermin. The item definition is only an acknowledgement of the practice in preservation. Unit containers are those containing basic standard quantities into which an item of supply is divided, issued or used, for ease of sale, transport, etc. Unit containers that reach the consuming public for sale are generally the smallest though larger units can be encountered in commerce. But whatever the size of the unit for sale, the assessment will have to be in consonance with Section 4 and the container will figure as a part in the valuation that follows.
14. It is necessary to make the mental distinction because it would be possible to mistake this item as enunciating a principle of inclusion of the container and so, by implication, saying that other items do not. Nothing could be farther from the truth. The item was only making a category definition because it covered prepared and preserved foods, and such preserved foods as presented in these containers. But other goods also have the same inclusion of packing principle and the assessments in all categories of items and heading have this common essence running through them. And if screw cap is an ingredient/a component of Horlicks then there can be no earthly reason why a wooden crate cannot be an ingredient of a refrigerator, or of a bar of soap.
15. The screw cap played no part in the completion of the manufacture of the Horlicks. The Horlicks was finished and in a form ready for consumption when it reached the bottling plant. There was no last process involving the metal screw cap. We understand a raw material and a component as one which takes the total manufacturing activity nearer the finished and completed product, the culmination product, the ultimate article. That article must receive directly from the raw material or component, a contribution without which it would not be that ultimate article. But once this ultimate article is perfected and requires no further contribution, nothing more can qualify as its raw material or component, however, desirable the new entrant may be as a complement or adjunct of the ultimate product, article. The metal screw cap contributed nothing to the Horlicks drink powder but it was a desirable and useful adjunct or complement, enabling the finished product to reach the consuming public in the proper condition, free from contamination and preventing loss during carriage, storage. The Horlicks would still be Horlicks even if packed in a sealed tin can or in a paper bag, which has no metal screw cap. A true raw material or component is one whose absence will subtract from the quality /character of the ultimate product-the product that is manufactured lacking in smaller or larger measure an essential part-whether it is colour, flavour, hardness, softness, odour or whatever was to be contributed by the missing ingredient-from its total aggregation.
16. We repeat that the packing/containing devices for a product are not ingredients of the product. But under the law, their values are deemed to form part of the contents for the purpose of assessments. This is not peculiar to item IB but holds true of all products to which Section 4 of the Central Excises and Salt Act is applicable. It would, however, not be lawful to deduce that the packing device forms part of the contents for the purpose of an exemption. We have to distinguish clearly that the law does not recognise packing material as part of the excisable goods. All that Section 4 does is to define value as inclusive of the cost of packing when goods are removed packed. It is the cost of packings, not the packings, that is the object of the section's intention. It would be a mistake, in our opinion, to say that "excisable goods" in Notification No. 201/79-C.E. mean the Horlicks container because of the wording of item IB. Section 4 also deals with "excisable goods". It is the cost of the packings that is added to the value of the "excisable goods": it is not the packings that are added to the excisable goods.
17. We set aside the Appellate Collector's order. We deny M/s. H.M.M.Ltd. the concession they seek under Notification No. 201/79-C.E. and so admit the appeal C. No. V(18)2/299/TBL/CE/84/1396D, dated 27-7-84 filed by the Collector of Central Excise, Calcutta.
18. I have perused the order proposed by my learned Brothers. However, I have regretfully to disagree with them.
19. Item No. IB of the First Schedule to the Central Excises and Salt Act, 1944, (CET) reads thus :- "Prepared or preserved foods put up in unit containers and ordinarily intended for sale including preparations of...not elsewhere specified." Section 2(d) of the Act defines "excisable goods" as "goods specified in the First Schedule as being subject to a duty of excise and includes salt." The excisable goods comprised in Item IB of the CET are thus prepared or preserved foods put in unit containers and ordinarily intended for sale. In other words, prepared or preserved foods in bulk or put up in containers which are not unit containers and ordinarily intended for sale are not "excisable goods" under Item IB CET within the meaning of Section 2(d) of the Act.
20. Notification No. 201/79, dated 4-6-1979 as amended by Notification No. 105/82, dated 28-2-1982 reads as follows :- 'In exercise of the powers conferred by Sub-rule (1) of Rule 8 of the Central Excise Rules, 1944, and in supersession of the notificatian of the Government of India in the Ministry of Finance (Department of Revenue) No. 178/77-C.E. dated 18th June, 1977, the Central Government hereby exempts all excisable goods (hereinafter referred to as "the said goods"), on which the duty of excise is leviable and in the manufacture of which any goods falling under item No. 68 of the First Schedule to the Central Excises and Salt Act, 1944 (1 of 1944), have been used as raw materials or component parts (hereinafter referred as "the inputs"), from so much of the duty of excise leviable thereon as is equivalent to the duty of excise already paid on the inputs.' It should be noted that the above exemption is a general one and covers all excisable goods subject to the stipulations contained in the notification. The expression "excisable goods" used in the notification has not been defined, It is, therefore, in my view, to be understood to have the same meaning as in the Central Excises and Salt Act especially in the absence of any explanation or definition clause in the notification seeking to limit or restrict the meaning of the expression assigned to it under the Act. Consequently, "excisable goods", for the purpose of the notification would be the goods specified in the First Schedule to the Act as being subject to a duty of excise. Turning to the First Schedule, we find, as already noted, item IB which, quite unlike other items in the Schedule, specifies prepared or preserved foods put up in unit containers and ordinarily intended for sale.
21. From the above discussion, it appears to me that what is sought to be taxed under Item IB is prepared and preserved foods put up in unit containers and ordinarily intended for sale' which is also what is sought to be partially exempted from duty by the notification. The specification of unit containers is, in my opinion, significant from this point of view and not so much from the point of view of valuation of the goods under Section 4 of the Act for assessment to duty. Even if item IB did not specify unit containers, Section 4 of the Act would have come into play to as to include the cost of packing (unit containers, in this case) in the assessable value of the goods (prepared or preserved foods). This, however, does not detract from the validity of the argument that the object of taxation under item IB of the CET and of the exemption under the notification is not prepared or preserved foods simpliciter but prepared or preserved foods put up in unit containers.
22. Notification No. 201/79 exempts all excisable goods in the manufacture of which any goods falling under Item No. 68, CET have been used as raw materials or component parts, the extent of exemption being equivalent to the duty of excise already paid on the item 68 goods. The screw caps under consideration in the present case have, admittedly, suffered duty under Item No. 68, CET. The question is whether the screw caps could be said to have been used as a raw material or component part in the manufacture of the "excisable goods" (Horlicks, in the present case). It cannot be seriously contended that the screw cap has been used as a raw material. The question, therefore, narrows down to whether it has been used as a component part. A screw cap cannot obviously be said to be a component part of Horlicks as such for the simple reason that it is not an ingredient of Horlicks. But that is not the question in the present case. It is whether the screw cap has been used as a component part of the "excisable goods" which, as we have seen, is Horlicks "put up in unit containers and ordinarily intended for sale". In my view, there can be little doubt that the screw cap has been used to make up i e. as a component part of the unit container in which Horlicks has been packed and without which Horlicks would not have fallen under item No. IB. No doubt the expression 'unit container' has been used in item 1B, one could argue that a container can hardly be a part of an excisable commodity in the normal course. In the vast generality of cases, the value of the container is includible in the assessable value of the excisable goods by virtue of Section 4 but that is not because the container is taken as part of the goods but because the cost of packing is, by virtue of Section 4, includible in the assessable value of the goods. In the case of item IB, the unit container is an essential ingredient or part of the excisable goods as, without the container, the commodity (prepared or preserved foods, as such) will not fall under item IB. In this sense, the unit container is to be viewed as an integral part of the excisable goods in item IB. I would, therefore, hold that the respondents are entitled for the benefit of Notification No. 201/79 as amended in 1982.
23. The Tribunal's decision in Hindustan Lever Ltd. case reported in 1985(19) E.L.T. 96 has no application to the facts of the present case.
In that case, printed cartons which had suffered duty under Item No. 68 CET were used for packing of Surf and Soap. The appellants claimed relief of the duty paid on the printed cartons in terms of Notification No. 201/79, the period of the dispute being prior to the amendment of 1982. The Tribunal took the view that printed cartons could not be considered either as raw material or component part in the manufacture of surf/soap. But then, it must be noted that the Central Excise Tariff Items for soap (Item 15) and Surf (Item 15AA) did not, unlike item IB, require that soap and surf should, to fall within the scope of the respective tariff items, be put up in unit containers.
24. I agree with my learned Brothers that the several decisions set out in their Order and cited before us are not relevant for determination of the present dispute.
25. In the light of the views I have set out above, I would propose an order dismissing the appeal but, then, the appeal succeeds in view of the majority opinion.