AURO FOOD PRIVATE LIMITED Vs. COLLECTOR OF C EX

JUDGEMENT

(1.) THIS appeal is directed against the order dated 17-5-1988 passed by the Collector of Central Excise (Appeals) Madras, by which he had upheld the order of the Assistant Collector of Central Excise, Punditry, dated 30-12-1987 directing the reversal of the MODVAT credit of Rs. 93,421,40 under Rule 571 of the Central Excise Rules, 1944. The appellants herein are manufacturers of biscuits falling under sub-heading 1905.11 of the Central Excise Tariff Act, 1985. They opted for MODVAT credit scheme and declared metal containers as one of the inputs used as packing materials in relation to the manufacture of biscuits. The Department found that the appellants were enjoying the exemption under Notification No. 34/83 dated 1-3-1983 which was rescinded with effect from 1-7-1986 in the financial year 1986-87. It was seen that the appellants herein in the financial year 1985-86 and upto 30-6-1986 had excluded the cost of metal containers from the assessable value of the finished product in terms of Notification No. 34/83. The Department also found that as per explanation to Rule 57A of the Central Excise Rules, input did not include packing material cost which had not been taken into account in the preceding financial year for determining the assessable value of the final product. On this ground, show cause , notice was issued to the appellants for reversal of the amount of MODVAT credit during the period 7-5-1987 to 25-6-1987, and on considering their reply to the charges, the Assistant Collector ordered reversal of the MODVAT credit which order was confirmed in appeal by the Collector of Central Excise (Appeals).

(2.) Shri C. Natarajan, the learned Counsel appearing for the appellants submitted that Rule 57A of the Rules in its Explanation (b) has two segments; the first one refers to packing material which had enjoyed exemption under a Notification issued under Rule 8 of the Rules, and the second segment refers to packing materials whose cost has not been included in the assessable vlaue in terms of Section 4 of the Central Excises & Salt Act, 1944 relating to determination of assessable value. The appellants herein had been availing of the exemption under Notification 34/83 which exempts only final product failing under 1B and 1C of the Central Excise Tariff from so much of the duty of excise leviable as is equivalent to the duty of the excise leviable on the specified goods with reference to the value thereof which represents the cost of the metal containers in which the goods are packed. The learned Counsel pointed out that in the facts of their case with reference to these two aspects of the Explanation to Rule 57A (1) (b), only the provisions of Sub-Rule (ii) to the Explanation applies to them and not (iii) as contended by the Department.

(3.) THE submissions made by the learned Counsel and the learned D.R. have been carefully considered. For examination of the issue involved it will be useful to extract the relevant portion of Explanation to Rule 57A which is as follows: