Full Judgment
39.01 to 39.14". It was pleaded that definite process of manufacture takes place, and that the ultimate product that is poly pouches emerged as an identifiable product from the poly films which are the raw materials, and that the goods in question were capable of coming to the market to be bought and sold.2. The matter was posted for hearing on 2-1-1995 when Shri Sharad Bhansali, SDR appeared for the appellants - Revenue. Shri S.K. Kohli, Advocate represented the respondent-assessee.
3. Shri Sharad Bhansali, the learned SDR stated that the poly pouches are goods and are marketable. They are also not eligible for exemption under Notification No. 132/86-C.E., dated 1-3-1986. He relied upon the Tribunal's decision in the case of Tirupati Foams Private Limited v.Collector of Central Excise, Ahmedabad, 1994 (72) E.L.T. 770 (Tribunal), which had been confirmed by the Hon. Supreme Court as reported at 1994 (71) E.L.T. A-23.
4. Shri S.K. Kohli, the learned Advocate described the process of manufacture, and referred to the decision of the Collector of Central Excise, Chandigarh, dated 26-11-1987 on the same issue but for a different period, wherein he had held that no article in the form of pouch comes into existence. It was also pleaded that if the pouch in question is considered as goods, even then they will be eligible for exemption under Notification No. 132/86-C.E., dated 1-3-1986 as the films used therein are duty paid. In this connection, the learned Advocate relied upon the Bombay-Ill Central Excise Collectorate Trade Notice No. 27(MP)/plastics/2/1986, dated 24-4-1986. As an alternative prayer he pleaded that the pouches made out of film were even otherwise eligible for exemption.
5. We have carefully considered the matter. Poly pouches come in different shapes and sizes and are used for varied purposes. In this case, we are concerned with those which are formed at the liquid milk filling machine in a continuous process of forming of a pouch, filling of liquid milk therein and the sealing of the liquid milk-filled pouch.
In the respondent's milk plant, the pasteurised liquid milk was filled in poly pouches of specified capacity, and marketed to the consumers.
They had a FFS (form, fill and seal) machine, where a poly pouch was formed to take up the milk, milk filled, and the filled pouch was sealed - all in a continuous simultaneous and automatic process. Duty paid co-extruded polyethylene film rolls generally having width of 323 + 2 mm, each weighing about 20 kgs. were brought from outside.
Depending upon the quantity of the liquid milk to be packed in each pack, the film was pre-printed, at specified intervals, with the quantity, name of the manufacturer, description of the goods, logo etc.
The film was first sealed horizontally to take the form of a two-side open tube. It is then mounted on top of the vertical FFS machine in which the liquid milk was continuously flowing through pipe attached to the float balance tank mounted on the top. The lower portion of the tube is first sealed; milk in fixed quantity is allowed to pour into the tube, whose lower portion has just been sealed. As and when the required quantity of liquid milk is filled through the FFS machine in the three side closed pouch, its upper portion is sealed. At the same time, the lower portion of the running tube is also sealed, and the pouch with milk filled therein is cut. In other words, while sealing and cutting the upper end of the pouch (with milk filled therein), the next lower end of the empty tube is also sealed simultaneously.
Thereafter, the milk is poured in the empty one side open pouch, and simultaneously the upper portion is sealed, milk pouch cut and the lower end of the running empty tube is also sealed. This process goes on till the film roll in the form of two side open tube is exhausted.
Then the next roll is mounted on the machine, and so on. After mounting of the roll, the whole process is automatic and simultaneous and the pouring of liquid milk and conversion of the two side open film tube, into a milk filled pouch is instantaneous, where as soon as the lower portion is sealed the milk is filled, and as soon as the milk is filled, the upper portion of the milk pouch is sealed; and this process goes on and on. After the upper portion is sealed it is no more an empty container but a milk pack. After the milk packet reaches the consumer, the milk is taken out and the used pouch is discarded.
6. The Additional Collector of Central Excise, Chandigarh, who adjudicated the matter had come to a finding, after considering the manufacturing process, that no marketable and excisable product comes into existence before the liquid milk is filled in the poly pouch. He had observed that the pouring milk and conversion of the film into a pouch take place simultaneously in an automatic process. He also found sustainable the claim of the assessee for exemption under Notification No. 132/86-C.E. Earlier the Collector of Central Excise, Chandigarh, in the appellants' own case but for a different period had observed in his adjudication order that the film was fed from one end and the pouch with packed material in it come out from the other end. The appellants before him had contended that "no goods come into existence which can be marketed as such. The pouches do not come in existence at any identifiable stage as the process is automatic and continuous." The Collector of Central Excise, Chandigarh had described the process of manufacture after seeing the actual packing of the goods in the Mohali Milk Plant of the appellants federation, and had observed that "what ultimately comes into existence is the container which is formed into a complete shape after the contents are put into it." He came to a finding that no specific article of plastic comes into existence during any of those operations. He also found the claim of the party to exemption in terms of Notification No. 132/86-C.E., sustainable.Indian Cable Company Limited, Calcutta v. Collector of Central Excise, Calcutta, 1994 AIR SCW 4071, the Hon. Supreme Court had viewed that the provisions of the Central Excises and Salt Act, 1944 (hereinafter referred to as the 'Act') mandate that a finding that the goods are marketable is a pre-requisite or sine qua non for the levy of duty. In the case of Andhra Pradesh S tate Electricity Board v.Collector of Central Excise, Hyderabad -(1994) 1 J.T. (SC) 545, it had been stated that the fact that the goods are not in fact marketed is of no relevance. So long as the goods were marketable they are goods for the purposes of Section 3 of the Act. In the case of Moti Laminates Private Limited v. Collector of Central Excise, Ahmedabad, 1995 (7) RLT 1 (SC) the Honourable Supreme Court had held that the test of marketability or capable of being marketable applies even to those goods which are mentioned in the tariff item. Para 7 from that judgment is extracted below :- "7. The duty of excise being on production and manufacture which means bringing out a new commodity, it is implicit that such goods must be usable, moveable, saleable and marketable. The duty is on manufacture or production but the production or manufacture is carried on for taking such goods to the market for sale. The obvious rationale for levying excise duty linking it with production or manufacture is that the goods so produced must be a distinct commodity known as such in common parlance or to the commercial community for purposes of buying and selling. Since the solution that was produced could not be used as such without any further processing or application of heat or pressure, it could not be considered as goods on which any excise duty could be levied." 8. We have given the process by which liquid milk is filled in the poly pouches on a machine which forms the pouch, fills the milk and seals the filled pouch, in a continuous, automatic process. The facts do not substantiate the argument made on behalf of Revenue that the poly pouches emerge as an identifiable product and that these type of poly pouches formed on the machine were capable of coming to the market to be bought and sold.9. In the particular case before us the poly pouch as it emerged in the FFS machine in a continuous uninterrupted process is not capable of being sold or being sold to consumers in the market. It is not saleable. It is not suitable for sale. They are also not an intermediate product, nor are they used for the manufacture of any other commodity (refer Supreme Court decision in the case of J.K.Spinning and Weaving Mills Limited v. Union of India, 1987 (32) E.L.T.234 (Para 39).Tirupati Foams Private Limited v. Collector of Central Excise, Ahmedabad, 1994 (72) E.L.T. 770 (Tribunal) was entirely different. In that case scrap and parings had arisen out of non-duty paid polyurethane foam block. On interpreting the exemption Notification Nos. 53/88-C.E., 54/88-C.E. and 217/86-C.E., the Tribunal had held that the said scrap and parings were not eligible for exemption despite the fact that the said foam block was manufactured out of duty paid material. There was no issue that the scrap and parings were not goods or the same were not marketed or were not marketable.
11. In the circumstances we agree with the Additional Collector of Central Excise, Chandigarh that no marketable excisable goods in this case comes into existence before the liquid milk is filled in the poly pouch.
12. With regard to the Notification No. 132/86-C.E. also, we do not find any infirmity in the impugned order. It has been argued on behalf of the Revenue that this notification had no application in the case as it exempted on condition that articles made of plastics were made out of certain specified goods on which Central Excise duty had already been paid. Under Notification No. 132/86-C.E., articles of plastics falling under sub-heading No. 3922.90 were exempted if such articles are made out of duty paid goods falling under Heading Nos. 39.01 to 39.15. Heading No. 39.01 covers various basic plastic raw materials in primary form. The respondents were bringing duty paid co-extruded poly films falling under Heading No. 3920.31. The basic raw materials for the films fall under Heading 39.01 (refer assessee's reply dated 26-3-1987 at page 24 of the paper book - Sub-para 2(ii) at page 25).
The dutiable film had come into existence in between the polymers of ethylene in primary form, and the milk filled poly pouch has been manufactured out of such duty paid films.
13. Both the Additional Collector, Chandigarh, who had passed the impugned order before us, and the Collector of Central Excise, Chandigarh who had adjudicated the similar matter but for a different period, had referred to the Trade Notice No. 27 (MP) Plastics/2/86, dated 24-4-1986 of the Central Excise Collectorate Bombay-Ill wherein it was clarified that exemption to articles of plastics (sub-heading No. 3922.90) would be available under Serial No. 3 of the Table annexed to Notification No. 132/86-C.E., dated 1-3-1986 even if at the intermediate stage in the manufacture of such articles of plastics any other product falling within Chapter 39 emerges so long as such articles are made out of the goods falling under Heading Nos. 39.01 to 39.15 on which excise duty or the additional duty under Section 3 of the Customs Tariff Act, has already been paid.
14. Taking all the relevant considerations into account, we do not find any infirmity in the Order-in-Original passed by the Additional Collector of Central Excise, Chandigarh, and accordingly we reject the appeal.
15. With due respects to the Hon'ble Members my views and orders are as follows :- In my opinion the process of making ready the milk filled poly packs by automatic machines, itself shows that during the process a poly pouch comes into existence and the milk gets filled therein.
Apparently, the pouring of the milk could only follow forming of the pouch, although negligible time interval between the two events may make them appear to be simultaneous; in fact the milk could not be just poured and contained unless the pouch first came into existence.
16. The pouch as defined in the Concise Oxford Dictionary is as follows : The fact that after the milk is poured the pouch is immediately sealed is a different matter.
17. The fact that the pouch is marketable cannot be denied because it actually gets marketed along with the milk albeit in a sealed form in the nature of a poly pack and commonly referred to as such.
18. I am, therefore, of the opinion that an excisable article does come into existence.
19. Further, the Heading 39.22 as it stood during the relevant period reads as "other articles of plastics and articles of materials of Headings 39.01 to 39.04".
20. In my opinion the pouches will be covered by the First Part i.e.
"other articles of Plastics" and will be classifiable under 3922.90.
21. The benefit of Notification No. 132/86 would have become avail able only if these pouches were made of materials of Heading Nos. 3901 to 39.04. However, admittedly they were made out of co-extruded polyethylene film rolls falling under Heading 3910.31 and, therefore, the benefit of entry 38 of Notification 132/86 was not available and the effective rate of duty will be governed by entry 37 of this Notification.
22. In view of the above position, I set aside the impugned order and accept the Department's appeal.
23. In view of the majority opinion, the Department's appeal is rejected.