Through this order we intend to dispose of Custom Appeals Nos,347 to 359 of 2001.
2. The appellants are manufacturers of Oil/Banaspati which is sold in packing of plastic pouches.
They were served with show cause notices by the Revenue alleging that the plastic pouches (of PCT heading 3923.000) were being produced by them and therefore, they were liable to pay central excise duty as well as Sales Tax as an independent product though the oil and ghee produced by them was exempt from levy of these charges.
3. In reply it was pleaded that pouch manufacturing was not undertaken as an independent activity but packing of oil or ghee in these pouches was an instant and continuous process with the ghee making. Accordingly it was stressed that being a part of the manufacturing process it was covered under H.S. Code 15.16 and not 39.23 under the head plastic pouches. Also that the appellants were not charging any excise duty or Sales Tax Act from the consumers while they were using plastic pouches after their purchase from their manufactured in plastic sheets on payments of central excise duty and the Sales Tax.
4. The Adjudicating Off f did not agree and the Tribunal by way of the impugned order upheld the order-in-original on three grounds. Firstly, that the term "manufacture" as defined in section 2(25) of the Central Excise Act, 1944 and section 2(16) of the Sales Tax Act, 1990 was properly attracted to the case of the appellant where plastic sheets were cut, stitched and sealed on automatic machines and poly bags were formed which had a distinct and definite shape and character.
Secondly, that appropriate head in the case of the appellant was 3923.000 which covered articles meant for conveyance and packing of goods. Thirdly, that under section 3 of the Sales Tax Act, 1990 every supply made of taxable goods by registered person was subject to the levy of sales tax. Also that per definition of the word "supply" as contained in section 2(33) of the Act it includes supply of goods which are produced in the course of business including those which are put to private or even non-business use. It was found that poly bags were put to business use by the appellants and having not been exempted from sales tax in terms of the 6th Schedule these were chargeable not only to the excise duty at a rate of 5% in terms of S.R.O. No,456(1) of 1996 dated 13-6-1996.but also to the sales tax at the stipulated rate. 'Noting that subsequently through Finance Ordinance, 2000 the poly bags were exempted from the excise duty it was held that for the period under review the appellants were liable to that levy.
5. In, substance the appellants contend that this Court needs to reply a question if in the given facts the learned Tribunal failed to appreciate that pouches as packing material were classifiable alongwith ghee/oil and therefore, no sales tax or central excise duty were recoverable from them.
As admittedly the product ghee/oil was not liable to these levies.
6. It is the case of the appellants that pouches preparation is not an independent process. It is a simultaneous with manufacturing of the product. Therefore, the plastic pouches so prepared are not covered by H.B. Code 39.23. It is argued that Rule 5(b) of General Rules for the Interpretation of the Harmonized System in the First Schedule to the Central Excise Act is attracted in such cases which states that:-- " subject to the provisions of Rule 5(a) above, packing materials and packing containers presented with the goods therein shall be classified with the goods if they are of a kind normally used for packing such goods. However, this provision does not apply when such packing materials or packing containers are clearly suitable for repetitive use."
7. According to the learned counsel the process involved in manufacturing of " vegetable ghee in plastic pouches" should be classified as a composite goods under H.S. Code 15.16 because plastic pouches (of H.H.Code 39.23.) were never distinctly and separately manufactured by the appellant.
It is claimed that , on being directed by the Collector (Adjudication), Faisalabad, the Assistant Collector (HQ), Faisalabad physically verified the machinery operated by the appellant and reported. It has been observed that automatic filling and sealing machinery for packing of ghee and oil in plastic pouches are installed in the Ghee Mills. These machines are connected with the kettle of oil/ghee manufacturing plants through pipelines, meant for transfer of oil/ghee from the kettle to the machines. Rolls of polythene films are fed to these machines which simultaneouslymanufacture/prepare plastic pouches from polythene films and pack cooking oil/ghee in the plastic pouches so manufactured." Lastly the learned counsel for the appellant informs that there was a difference of opinion expressed by two Division Benches off the Customs, Excise & Sales Tax Appellate Tribunal, on which a Full Bench was constituted to resolve the issue. It is also pointed out that during the pendency of the matter before the Full Bench of the Collector Multan was directed to make a report on the process being carried out by the appellants.
He conveyed the report to Departmental representative through letter dated 27th November, 2001.
That report which is part of the order of the Full Bench of the Tribunal according to the learned counsel. supports their case on facts as well.
8. Learned counsel for the Revenue, however, insists that the appellants are manufacturing poly bags and even being an intermediary product are liable to pay excise duty as well as Sales Tax.
The findings of the Tribunal in the impugned order with regard to P.T.C. heading covering conveyance and taking of goods, and their supply in terms of the definition contained in section 2(33) of the Sales Tax Act are also supported.
9. After hearing the rival arguments we are of the view that the appellants have a strong case. In the first place their claim that packing of poly bags was a continuous process and therefore, the part of the manufacturing process was fully supported by A.C. Sales Tax, Faisalabad who made his report on 15-11-2000 to Collector (Adjudication), Faisalabad. Also we have gone through a similar report made by the Collector, Multan on the direction of the Full Bench of the Tribunal which was reproduced in their order. The relevant part of the report reads as under:- "On physical checking of this process it has been found that the process of manufacturing of vegetable ghee and the process of packing in tins of different sizes and the plastic pouches of different rates is carried out simultaneously. The vegetable ghee after hydrogeneration of oil is stored in storage tanks which has two outlets, one for tin packing and other for plastic packing in pouches. Pouching machine in which oil pouch film rolls are fitted, are installed beneath these tanks. The plastic film in the form of roll is purchased from open market after getting it printed and is fitted in pouching machines. The size/weight of pouches (whether V, kg or 1 kg is adjusted on the adjuster machine. The vegetable ghee is then filled therein and the plastic roll is head stitched and mechanically cut by machine to take the form of pouch. The transfer of pouches from filling section to chilling section is done manually. Prima facie, it is continuous manufacturing process."
10. The Revenue is also in-correct in stressing that the appellants take any process with regard to pouches which could be termed as manufacturing as defined in the aforesaid provision of the Central Excise Rules, 1944 or the Sales Tax Act, 1990. The appellants admittedly purchased printed plastic sheets on rolls which were fed to automatic machines and accordingly they became a part of the manufacturing process for simultaneous packing of ghee so produced. These plastic pouches were neither manufactured distinctly nor produced in a style or shape that these could be stored or used independently. Having become the process of manufacturing of ghee/oil they became the part of the product namely vegetable ghee in plastic pouches which was properly coverable in H.S. Code 15.16. It was particularly so because these pouches were not re-useable.
11.The argument of the Revenue that rule 5(b) of the aforesaid rules ofinterpretation of the Harmonized System- is not attracted in the case in hand is also not tenable. The Ist Schedule to the Customs Act, 1969 containing General Rules for Interpretation is to be read as part of the First Schedule under Central Excises Act. Therefore, rule 5(b) becomes applicable to C interpret various entries of the headings given in the First Schedule to the Central Excises Act. According to this rule packing materials and packing containers presented with the goods are to be classified with the goods, if they are of a kind normally used for packing such goods,. However, the only exception being of such packing material or packing containers which are suitable for repetitive use. Judging the oil/ghee pouches on the guideline given in the rule, the case of the appellants becomes all the more stronger. It has not been denied by the Revenue that pouches containing oil/ghee after use of the ghee marketed in them are simply a refuse or waste and thereafter there is absolutely no chance of their repetitive use. Once having been filled with oil/ghee they become part of the product and when product is consumed their independent distinction is lost. Therefore, in view of the aforesaid rule of interpretation, these pouches were liable to be classified under the head covering the goods they contained. It is also not denied by the Revenue that these pouches were not distinctly and separately manufactured as such. They were never found to be capable of being scaled, weighed or stored separately nor it was actually done by any of the appellants. Accordingly the contention that "vegetable ghee in plastic pouches" obtained as a result of a continuous process of manufacturing appears to be factual as well as legally correct. These containers as such once having been fed to automatic machines were admittedly never taken off to be called a manufactured product or a product of different form the one which it contained.
That being so these appeals are allowed and the impugned order dated 14-7-2001 of the Tribunal confirming the imposition of levy as held by the Collector (Adjudication) Multan stands set aside.