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H.M.M Limited v. Collector Of Central Excise .
Factual and Procedural Background
The appellant—manufacturer of “Horlicks”—sought credit for the Central Excise duty already paid on metal screw caps affixed to Horlicks bottles, relying on Notification No. 201/79-CE issued under Rule 8 of the Central Excise Rules, 1944. The Collector (Appeals) had accepted the claim, holding the caps to be “inputs”/“component parts.” The Customs, Excise & Gold (Control) Appellate Tribunal, by a 2:1 majority order dated 28 March 1985, reversed that view, concluding that Horlicks was a finished product before bottling and that the caps were therefore outside the notification. The present appeal challenges the Tribunal’s majority decision.
Legal Issues Presented
- Whether metal screw caps affixed to bottles of Horlicks constitute “raw materials or component parts” within the meaning of Notification No. 201/79-CE, thereby entitling the manufacturer to set-off/credit of duty already paid on the caps.
- Whether Horlicks becomes an excisable article only when put up in “unit containers,” as required by Tariff Item IB of the First Schedule to the Central Excises and Salt Act, 1944.
Arguments of the Parties
Appellant's Arguments
- Under Item IB, Horlicks is excisable only when “put up in unit containers”; hence the manufacturing process is incomplete until the powder is bottled and capped.
- The screw cap is indispensable for marketing because, without it, the product cannot be sold as a “prepared or preserved food put up in unit containers.”
- Consequently, the caps are “component parts” or “inputs” covered by Notification No. 201/79-CE, and duty already paid on them is creditable.
Respondent's Arguments
- Before the Tribunal, the Department had asserted that Horlicks is already a finished, marketable product when it reaches the bottling plant, making the cap extraneous to the manufacturing process.
- At the Supreme Court stage, however, the respondent’s counsel did not contest the appellant’s claim after the Court’s reliance on precedent.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| CCE v. Jay Engineering Works Ltd., 1989 Supp (1) SCC 128; (1989) 39 ELT 169 | Name-plates affixed to electric fans are essential inputs; goods cannot be marketed without them, so duty on name-plates is creditable under Notification No. 201/79-CE. | The Court applied the same rationale, holding that screw caps are similarly indispensable for marketing Horlicks and therefore qualify as component parts for duty credit. |
Court's Reasoning and Analysis
The Court examined Notification No. 201/79-CE, which grants duty exemption to excisable goods manufactured with inputs falling under Item 68. It focused on the phrase “raw materials or component parts.” Referring to Tariff Item IB—“prepared or preserved foods put up in unit containers and ordinarily intended for sale”—the Court reasoned that Horlicks is excisable only after packaging, because the statutory entry itself mandates presentation in a “unit container.”
Relying on its earlier decision in Jay Engineering Works, the Court observed that marketing requirements can render an item an essential component of manufacture even if the core product is functionally complete without it. Just as a fan could not be marketed without a name-plate, Horlicks could not be marketed without a capped bottle. The screw cap therefore forms an integral part of the finished excisable article.
Given this reasoning, the Court concluded that the caps qualify as “component parts” under the notification, entitling the appellant to the set-off of duty already paid on them. The respondent’s counsel, in view of the precedent, did not press any contrary argument.
Holding and Implications
Appeal Allowed; Tribunal’s majority decision set aside; Collector (Appeals) order restored.
Immediate Effect: The appellant is entitled to credit of duty paid on metal screw caps under Notification No. 201/79-CE. No costs were awarded.
Broader Implications: The judgment reaffirms that packaging components indispensable for marketing a product—as required by the relevant tariff entry—may be treated as “inputs” or “component parts” for purposes of excise duty exemptions. While grounded in existing precedent, it clarifies that the principle applies to prepared or preserved foods packaged in unit containers.
N.P Singh, J.— This appeal has been filed against an order dated 28-3-1985 passed by the Customs, Excise & Gold (Control) Appellate Tribunal (hereafter referred to as ‘the Tribunal’). By majority decision (2 : 1), the Tribunal has held that the metal screw cap put on the bottle of the Horlicks is no part of the manufacturing process, because the Horlicks itself is a finished product and ready for consumption when it reaches the bottling plant. As such the metal cap cannot be held to be a component part to the finished product of Horlicks, so that it can be held to be “excisable goods” covered by Notification No. 201/79-CE. On that finding, the order passed by the Collector (Appeals) was set aside. The Collector (Appeals) had held that screw cap used for the container of Horlicks was very much an input and a component part, because without the screw cap, the prepared and preserved food like Horlicks cannot be packed into unit containers for purpose of sale. A direction had also been given by the Collector (Appeals) to allow the credit on account of duty paid on the screw caps in terms of Notification No. 201/79-CE to the appellant.
2. It appears that under Rule 8 of the Central Excise Rules, 1944 by Notification No. 178/77-CE dated 18-6-1977 general exemption of duty was granted in respect of excisable goods on which duty of excise is leviable and in the manufacture of which any goods falling under Tariff Item No. 68 of the First Schedule to the Central Excises and Salt Act, 1944 have been used from so much of duty of excise leviable thereon as equivalent to the duty of excise already paid on the inputs. Notification No. 201/79-CE was published on 4-6-1979. In this notification procedure for availing set off was duly laid down. Notification No. 201/79-CE at the relevant time read:
“In exercise of the powers conferred by sub-rule (1) of Rule 8 of the Central Excise Rules, 1944, and in supersession of the notification of the Government of India in the Ministry of Finance (Dept. of Revenue) No. 178/77-CE dated 18-6-1977 the Central Government hereby exempts all excisable goods (hereinafter referred to as ‘the said goods’), on which the duty of excise is leviable and in the manufacture of which any goods falling under Item 68 of the First Schedule to the Central Excises & Salt Act, 1944 (1 of 1944), have been used as raw materials or component parts (hereinafter referred as ‘the inputs’), have been used, from so much of the duty of excise leviable thereon as is equivalent to the duty of excise already paid on the inputs.”
3. The appellant in view of the aforesaid notification claimed that the metal screw caps which are used on the bottles that contain the product Horlicks are component parts to the Horlicks and therefore shall be deemed to qualify for the exemption under the said notification. In support of the said stand reference was also made to Item No. IB CET, the relevant part whereof is:
“Prepared or preserved foods put up in unit containers and ordinarily intended for sale, including preparations of vegetables, fruits, milk, cereals, flowers, starch, birds, eggs, meat, meat offals, animal blood, fish, crustaceans or molluscs, not elsewhere specified.”
According to the appellants, the expression put up in “unit containers” makes the Horlicks an excisable article only when it is put up in unit containers. It was pointed out that the manufacturing process of the Horlicks is not complete only by manufacture of the Horlicks powder, but it culminates only when it is packed in bottle with metal screw container; only at that stage not only it becomes marketable but also becomes an excisable article.
4. The majority judgment pointed out that as the item IB covers “prepared and preserved foods” there shall be a fallacy if it was held that container formed an integral part of the finished product. It was further pointed out that products like preserved foods or canned meat, canned fish or milk or vegetables were sold commercially in containers of certain sizes, but it was goods described and packed in those containers that the law wanted to tax under the said heading. When the Notification No. 201/79-CE speak of prepared and preserved foods, it shall not include the package or the unit containers. One of the members of the Tribunal who gave the minority judgment however, pointed out that it appeared from First Schedule of the Act aforesaid that Item IB quite unlike other items in the Schedule specifies prepared or preserved foods put up in unit containers and ordinarily intended for sale. According to him, the screw caps were the component parts.
5. From a bare reference to the Notification No. 201/79-CE, it appears that the Central Government exempted all excisable goods on which duty of excise was leviable and in the manufacture of which any goods falling under Item No. 68 of the First Schedule of the Act had been used as raw material or component parts, from so much of the duty of the excise leviable thereon as was equivalent to the duty of excise already paid on the inputs. Now the question which has to be determined is as to whether the screw caps can be held to be component parts? When Item IB under which the product falls says, prepared or preserved foods put up in unit containers and ordinarily intended for sale, then for becoming an excisable article, Horlicks must be put in containers, ready for sale. In this background, can it be said that only Horlicks, which can be held to be the prepared and preserved food was intended to be covered by Item No. IB? This Court in the case of CCE v. Jay Engineering Works Ltd. 1989 Supp (1) SCC 128, (1989) 39 ELT 169, had to consider as to whether name plate affixed on fan was an input and essential ingredient entitled to set off of duty under the same Notification No. 201/79-CE. In that connection, it was said :
“It appears that the Department's own instructions in their Commodity Manual made it obligatory for every manufacturer to affix the name-plates on the fans. In those circumstances, namely, for marketing the name-plates (sic fans), these were essential. In other words, they could not be marketed without the name-plates. The relevant particulars of the fan for the determination of duty, depended on the particulars which are contained only in the name-plates. The Department's instructions requiring every manufacturer to affix the name-plates on the fans, indicate that name-plate was an essential ingredient to complete the process of manufacture for marketable electric fans.
In those circumstances, in our opinion, the Tribunal was right in arriving at the conclusion that the name-plate was not a piece of decoration. Without the name-plate, the electric fans as such, could not be marketed; and that the dealer was entitled to the benefit of the Notification No. 201/79-CE for the purpose of obtaining pro forma credit. Fans with name-plates, have certain value which the fans without the name-plates, did not have. If that be so, then the value added for the accretion of name-plate was entitled to pro forma credit in terms of the said notification. It is true that an electric fan may perform its essential function without affixation of the name-plate, but that is not enough. Electric fans do not become marketable products without affixation of name-plates.”
6. According to us, the same reasoning is applicable in the case of Horlicks. The screw cap shall be deemed to be component part of Horlicks and Notification No. 201/79-CE aforesaid shall be applicable. The learned counsel who appeared on behalf of the respondent, in view of the aforesaid judgment of this Court did not contest the claim made on behalf of the appellant.
7. Accordingly, the appeal is allowed. The majority judgment of the Tribunal is set aside. The order of the Collector (Appeals) is upheld. However, in the facts and circumstances of the case, there shall be no orders as to cost.
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