2004 (97) ECC 407 (Tri)

CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL

New Delhi -- Bench-NB(SM)

Shri P.G. Chacko, Member (J)

M&B Footwear Pvt. Ltd.

Versus

CCE, Noida

Appeal No. E/1599/2003/NB(SM)

[Arising out of Order-in-Appeal No. 181-CE/APPL/NOIDA/2003 dated 20.5.2003 passed by the Commissioner (Appeals), Customs & Central Excise, Noida]

Final Order No. A/153/2004/NB/SM, dt. 29.1.2004, Certified on 13.2.2004

Modvat Credit

Plastic carry bags containing footwears -- Whether inputs -- Appellants being manufacturers of footwears -- Plastic carry bags used by the appellants were not used even in relation to the manufacture of footwear, whether directly or indirectly. Plastic bags were used in relation to post-manufactural activity viz. sale of the final product. Credit rightly disallowed -- CE Rules, Rules 57A, 57B. [Para 4]

PRESENT :

Shri R. Krishnan, Adv. for the appellant.

Shri S. Bhatnagar, DR for the respondent.

Cases Cited :

1. CCE v. Swaraj Mazda, 1993 (68) ELT 258 (T) [Para 2]

2. Liberty Shoes Ltd. v. CCE, New Delhi, 2001 (135) ELT 1103 (T) [Para 2]

3. Union of India v. Sonic Electrochem 2002 (83) ECC 752 (SC) [Para 2]

Per : P.G. Chacko

This appeal is against denial, by the lower authorities, of Modvat credit of Rs. 1,01,556 to the appellants for the periods November 1998 to February 1999 and August 1999 to December 1999. The credit was taken on `plastic carry bags' which were treated as inputs by the appellants. The appellants are manufacturers of footwears. They cleared their products in cardboard boxes (cartons). In each carton, they also enclosed a `plastic carry bag' in multi-folded form. They cleared the goods, on payment of duty, to their dealer and the ultimate consumer who would buy the footwear from the retail dealer would carry it home by putting the footwear-in-carton in the plastic bag. This manner of use of the plastic bag has been forthrightly stated in the memorandum of appeal thus: "These carry bags were neatly folded and kept inside the box in which the pair of shoes were also kept so that at the ultimate sale point, the consumer is enabled to carry the box by putting the same inside the bag. In fact, the delivery of the articles at retail outlet is only in this manner." The Modvat credit taken on the plastic carry bags as inputs has been disallowed by the lower authorities on the basis of their finding that the said bags were not used in, or in relation to, the manufacture of footwear.

2. Heard both the sides. Ld. counsel for the appellants relies on Clause (v) of Sub-rule (1) of Rule 57B as this rule stood during the relevant period. The said Clause (v) read as under :- "Packing materials and materials from which such packing materials are made provided the cost of such packing materials is included in the value of the final product." Counsel submits that the cost of plastic bag was also included in the value of footwear for the purpose of payment of Central Excise duty at the time of clearance from the factory and, therefore, the plastic bag should be held to be an eligible input under Rule 57B. Counsel further argues that, without the plastic bags, the footwears were not marketable, and any item cleared along with a final product to make it marketable should be held to be an input eligible for Modvat credit. In this connection, Ld. counsel relies on para (9) of the Supreme Court's judgment in Union of India v. Sonic Electrochem (P) Ltd., 2002 (83) ECC 752 (SC) : 2002 (145) ELT 274 (SC). Reliance is also placed on the Tribunal's decision in CCE v. Swaraj Mazda, 1993 (68) ELT 258, wherein floor mats cleared along with motor vehicles were held to be `input' used in relation to the manufacture of the motor vehicles. The DR. on the other hand, submits that the issue is already covered in favour of the department by the Tribunal's decision in Liberty Shoes Ltd. v. CCE, New Delhi, 2001 (135) ELT 1103, in which case similar `carry bags' used for similar purpose during the period April to November 1996 were held to be ineligible for input duty credit under Rule 57A. It is submitted that the said decision rendered by a 2-Member Bench of the Tribunal is binding on this Bench.

3. I have carefully considered the submissions. In the case cited by the DR, the assessee was engaged in the manufacture of footwears and was clearing the same along with `carry bags' in cardboard boxes after including the cost of such bags in the assessable value of the final product. The carry bags were intended to be used in the same manner as in the instant case. The Bench, however, held the goods to be ineligible for input duty credit under Rule 57A, after finding that the carry bags were not used as inputs directly or indirectly in the manufacture of footwears. It further held that inclusion of cost of the bag in the assessable value of the final product would not ipso facto render the bag eligible for input duty credit. The ratio of the decision in Liberty Shoes is contained in paragraph (7) of the Tribunal's Order which is reproduced below:-

"Rule 57A of the Rules, no doubt, permits the assesses to claim the Modvat credit on packing material if the cost of said material was included in the assessable value of the final product, but the material has to be proved to be a packing material by the manufacturer for taking benefit of this rule. By merely including the cost of the material in the assessable value would itself not entitle the manufacturer to claim Modvat credit under this rule if that material otherwise could not be held to be packing material. In the instant case, footwears are packed by the appellants in the cardboard boxes and then those boxes are packed in the big cartons for transportation/delivery to their retailers. These carry bags are not at all used by them for the packing of the cardboard boxes or of the footwears. These bags are only placed by them in each cardboard box along with pair of footwear and as such these are not used even indirectly much less directly for the packing of the footwears. The benefit of Notification No. 28/95-C.E., dated 29.6.95 relied upon by the appellants cannot be also extended to them. Under that notification Modvat credit had been made eligible not only on those inputs which are used only directly but also indirectly in the manufacture of the final product. But such is not the position here. The carry bags are not being used as inputs directly or indirectly by the appellants in the manufacture of footwear. These bags are in fact utilized by the retailers at the time of the sale of the footwears to the consumers as they supply these bags to enable them to carry footwear cardboard box to home conveniently."

The period of dispute in Liberty Shoes (supra) was April to November 1996. Though ld. counsel for the appellants has attempted to distinguish that case from the instant one, he has not disputed that the relevant provision of law relating to input duty credit remained the same for the periods of dispute in both the cases. Therefore, the decision in Liberty Shoes (supra) must cover the issue in the instant case.

4. Ld. counsel has heavily relied on Rule 57B in general and Clause (v) of Sub-rule (1) thereof in particular. According to Rule 57B(1), a manufacturer of final product shall be allowed to take credit of the specified duty paid on certain inputs specified in Clauses (i) to (vi). The sub-rule clearly laid down that the specified inputs should have been used in or in relation to the manufacture of final product, whether directly or indirectly and whether contained in the final product or not. In Liberty Shoes, it has been held that the carry bags used by the assessee were not used in manufacture of footwear directly or indirectly, In the instant case, I would go a steps further to hold that the plastic carry bags used by the appellants were not used even in relation to the manufacture of footwear, whether directly or indirectly. The plastic bags were, undisputedly, used in relation to post-manufactural activity viz. sale of the final product. The factum of inclusion of cost of the plastic bag in the assessable value of footwear does not detract from this position. Apart from all these, it appears that the appellants have claimed the benefit of Rule 57B for the first time. At the lower levels, they claimed under Rule 57A only. In the rest it, nothing contained in sub-rule (1) of Rule 57B is of any aid to the appellants' case.

I have peruse the Apex Court's judgment cited by Ld. counsel. It examines marketability of the subject goods for the purpose of excisability. It does not establish any nexus between marketability and input duty credit. As a matter of fact, marketability begins where manufacture ends. Input duty credit under Rule 57A has thus association with manufacture only. The Tribunal's decision in Swaraj Mazda case also cannot be followed in the instant case inasmuch as the floor mats cleared along with motor vehicles in that case are hardly on par with the plastic carry bags cleared along with footwears in the instant case.

6. In view of the above findings, the appeal is devoid of merit and the same is dismissed.