Union of India vs Kwality Biscuits Ltd.

B.V. Nagarathna, J.—The revenue has filed this appeal, challenging the order dated 15th December 2005 made in final order No. 2080/2005 [2006 (205) E.L.T. 669 (Tri. - Bang.)] by the Customs and Excise Appellate Tribunal, Bangalore, raising the following substantial questions of law.

(1) Whether the Tribunal was correct in coming to a conclusion that since the inputs have suffered duty and have gone into the manufacture of final products the credit has to be allowed although it goes against the definition of ''inputs'' as appearing in Rule 57A of the Central Excise Rules, 1944?

(2) Whether it was correct for the Tribunal to grant MODVAT credit in spite of the explicit legal provision contains in Rule 57A of the Central Excise Rules, 1944?

(3) Whether Tribunal could pass an order without examining the issue involved, following the ratio of a case involving dissimilar facts?

The respondent is engaged in the manufacture of Biscuits and it claimed MODVAT credit with regard to Liquid Adhesives, BOPP Tapes and such other materials used as secondary packing for the said goods, to an extent of Rs. 1,74,934/- on the ground that the said goods are used as secondary packing material and the value of the same is included in the value of the Biscuits. The appellant issued show cause notices to the respondent on the ground that it could not have availed of the said credit under the provisions of Rule 57A of the Central Excise Rules, 1944, in response to which, the contention of the respondent was that the said materials were used for selling the cartons in which the Biscuits were packed and hence, it was entitled to avail MODVAT credit. The Deputy Commissioner, after hearing, passed an order, stating that, the said goods were not part of the secondary packing material and that the deduction claimed for the said material as inputs could not be allowed under Rule 57A of the said Rules. Accordingly he disallowed the credit to an extent of Rs. 1,74,934/-. Against the order of the Deputy Commissioner, an appeal was preferred by the assessee before the Commissioner, which authority confirmed the order of the Deputy Commissioner. Being aggrieved by the said order, the respondent preferred the appeal before the Tribunal. The Tribunal, however, reversed the order of the Commissioner and granted the relief to the respondent. The said order is in challenge in this appeal, raising the aforesaid substantial questions of law.

We have heard learned counsel for the appellant and the learned counsel for the respondent.

It is contended on behalf of the appellant that in the instant case, the product involved is Biscuits and that the said goods are packed in cartons and it is only for affixing labels on the cartons by way of Adhesive Tapes that MODVAT credit has been claimed, which, the respondent is not entitled to. Keeping in mind the provisions of Rule 57A of the Rules, he submits that the Deputy Commissioner and the Commissioner were justified in disallowing the said credit. But the Tribunal was not right in granting the relief by an interpretation of Rule 57-A of the said Rules and therefore, the order of the Tribunal ought to be reversed in this appeal.

Per contra, it is submitted on behalf of the respondent that considering the nature of product and the fact that it requires to be packed in a particular manner in order to preserve its quality, MODVAT credit with regard to secondary packing materials was claimed which is in terms of the said Rule 57A of the Rules and that the Tribunal was justified in allowing the said credit and therefore, there is no merit in this appeal.

Having heard learned counsel on both sides and on perusal of the material/ it is not in dispute that the respondent assessee is a manufacturer of Biscuits. In order to see as to whether it is entitled to the benefit of MODVAT credit under Rule 57A of the Rules. It is necessary to keep in mind, the nature of product. The product is such an eatable, which would ultimately lose its quality and taste, if not preserved by adequate packaging. Therefore, it requires a particular nature of packing in order to preserve its quality, the packing material in respect of which, MODVAT credit is claimed, is a necessary item which would fall within the scope of provisions of Rule 57A of the Rules. Therefore, the Tribunal was justified in holding that the assessee would be entitled to claim MODVAT credit on the value of the said products. We find that the Tribunal was justified in granting the relief by considering the fact that the product in question is such that, it requires to be packed in a particular manner for its preservation and therefore, the order passed by the Tribunal which we affirm in this appeal is wholly on account of the nature of the said product and therefore, the respondent is entitled to claim MODVAT credit with regard to the secondary packing materials. We also observe that as a matter of right, it is not that all packing material could be considered for the purpose of MODVAT credit as an input and we clarify that keeping in mind the nature of the product in the instant case, i.e. Biscuits, the relief granted to the respondent by the Tribunal, is just and proper.

For the aforesaid reasons, the substantial questions of law are answered against the appellant. Appeal is accordingly dismissed.