M AND B FOOTWEAR PVT. LTD. Vs. CCE

JUDGEMENT

(1.) 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: -