Full Judgment
The learned SDR, further, submitted that HDPE bags are not used in relation to the manufacture of final product as these are used by the supplier of the salt for the packing of salt which is a raw-material; that the provisions of Rule 57B of the Central Excise Rules, 1944 are also not applicable as the packing material is not used in relation to the manufacture of the final product.
3. On the other hand, Shri B.L. Narasimhan, learned Advocate, submitted that salt is undisputedly necessary for the manufacture of caustic soda; that, thus, salt is used in the manufacture of caustic soda; that when the salt is cleared by the salt manufacturer, no packing material is used; that, however, when the salt is cleared by rail to the respondents, the salt manufacturer used the bags for packing salt; that the salt is an intermediate product for the manufacture of caustic soda and the manufacturing of salt is an integrated activity in the manufacture of caustic soda; that this is fully supported by the decision of the Larger Bench of the Tribunal in the case of Ashwin Vanaspati, 1994 (70) ELT 754; that, thus, the packing material used for packing the intermediate product would necessarily be treated as intermediate product and consequently would be input for the final product. He also referred to Rule 57F (4) of the Central Excise Rules, which provides for removal of inputs for the manufacture of intermediate product necessary for the manufacture of final product and returning the same to the factory for further use in the manufacture of final products, that the HDPE bags are inputs for the Caustic Soda Lye.
He also relied upon the decision in their own case wherein the Tribunal has allowed the Modvat Credit on HDPE bags vide Final Order No.A/388/04 (SM) dated 26.2.2004.
4. We have considered the submissions of both the sides. Rule 57A of the Central Excise Rules, 1944 enables the manufacturer to avail of the Modvat Credit of the duty paid on inputs which are used in or in relation to the manufacture of the final product. The facts, which are not disputed in the present matters, are that the respondents manufacture Caustic Soda Lye for which salt is the main raw-material.
The respondents obtain the salt from various salt manufacturers and they are sending HDPE bags to the salt manufacturers for packing salt for the purpose of transporting the same through railways. It is, thus, apparent that the bags, in question, are used for packing salt, which is a raw-material, by the manufacturer of salt. It is also not in dispute that no duty is paid on the salt as it is exempted from payment of duty. The bags, thus, have been used in or in relation to the manufacture of salt which suffers no Central Excise duty. Therefore, it cannot be claimed by the respondents that HDPE bags, in question, are used in or in relation to the manufacture of their final product, namely, Caustic Soda Lye. There is no substance in the submissions that the salt is an intermediate product as it is not their case that the salt is being manufactured by them in their factory and is coming as an intermediate product in the process of manufacture of Caustic Soda Lye.
They are undisputedly purchasing the salt from various manufacturers.
Provisions of Rule 57F(4) are also not applicable as HDPE bags, sent by the respondents, are not further processed in the manufacture of final product. Rule 57B of the Central Excise Rules is also not applicable.
Rule 57B, at the relevant time, empowered the manufacturer of final product to take credit of the duty paid on packing material provided the cost of such packing material is included in the value of the final product. In the present matters, the packing material is not used for packing the final product manufactured by the respondents as the same are used for packing the raw-material which is manufactured by some other manufacturer. The decision in the case of Ashwin Vanaspati Inds.
(Pvt.) Ltd. (supra), relied upon by the learned Advocate, is not applicable as the facts are entirely different. In Ashwin Vanaspati Industries (Pvt.) Ltd. case (supra), the assessee were receiving tin sheets as packing material and in their own factory converting them into containers without the aid of power; that as the power was not used, the containers were exempt from payment of duty. The Tribunal extended the benefit of Modvat Credit holding that the words used in Rule 57A are 'packing materials: The learned Single Member, in their own case vide Order dated 26.2.2004 allowed the Modvat Credit on the ground that the cost of the packing material was included in the value of final product. We respectfully do not agree with the said decision as in the said decision it was not considered that the HDPE bags had not been used in or in relation to the manufacture of final product but were used in the manufacture of inputs in some other's factory.
Accordingly, we hold that the Modvat Credit of duty paid on HDPE bags is not available to the respondents. However, we do not find the present matters fit for imposing any penalty on the respondents as the issue involved is one of interpretation of Rules. The appeals are disposed of in these terms.