Holding

The screw caps are deemed component parts of Horlicks and the exemption under Notification No. 201/79‑CE is applicable.

Summary

H.M.M. Ltd. claimed that the metal screw caps used to seal bottles of Horlicks are component parts of the finished product and therefore eligible for a duty exemption under Notification No. 201/79‑CE. The Collector (Appeals) allowed the claim, but the Customs, Excise & Gold (Control) Appellate Tribunal reversed the decision, holding that the caps are not part of the manufacturing process. The Supreme Court examined whether the caps qualify as "inputs" or "component parts" under Rule 8 of the Central Excise Rules and the definition of Item IB in the First Schedule. Relying on the earlier judgment in Collector of C.E. v. Jay Engineering Works Ltd., the Court held that the caps are essential for making Horlicks marketable and thus are component parts. Consequently, the exemption under Notification No. 201/79‑CE applies and the Tribunal’s order was set aside, with the Collector’s order upheld.

Issues considered

Whether metal screw caps used for packaging Horlicks constitute component parts of the excisable article under Notification No. 201/79‑CE.
Whether the exemption and set‑off of excise duty under Rule 8 of the Central Excise Rules, 1944, is available to the appellant.

Legislation cited

Subjects

excise dutyexemptioncomponent partNotification No. 201/79‑CEset‑offpackagingHorlicksscrew capsCentral Excise ActTariff Item 68unit containers

Judgment

H.M.M. LIMITED A
v.
THE COLLECTOR OF CENTRAL EXCISE

SEPTEMBER 23, 1994

[R.M. SAHA! AND N.P. SINGH, JJ.] B

Central Excise Rules, 1944 :

Rule &-Notification No. 201/79-CE-Exemption-Benefit of Screw Cap
of Horlicks-Held: It is component part of the finished product Horlicks and C
therefore entitled to the benefit of the Notification.

Under Rule 8 of the Central Excise Rules, 1944, Notification No.
178177·CE dated 18.6.1977 was issued granting general exemption of duty
in respect of excisable goods on which excise duty was leviable and in the
manufacture of which any goods falling under Tariff Item No. 68 of the D
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 laying down the procedure for availing the set off.
E
The appellant company claimed that the metal screw caps used on
< -/>
the bottles that contain the product Horlicks were component parts of
Horlicks and therefore quality for the said exemption. The Collector
(Appeals) upheld the claim of the appellant. But the Customs, Excise &
Gold (Control) Appellate Tribunal by its majority judgment reversed the
order of the Collector (Appeals). Hence the appeal by the appellant com· F
pany.

Allowing the appeal, this Court

HELD : 1. From a bare reference to the Notification No. 201179-CE G
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. When Item IB under which the product falls says, prepared H
13
14 SUPREME COURT REPORTS [1994] SUPP. 4 S.C.R.

A or preserved foods put up in unit containers and ordinarily Intended for
sale, then for becomin& an excisable article, Horllcks must be put in
containers, ready for sale. Therefore, the screw cap shall be deemed to be
component part of Horlicks and notification No. 201/79 C.E. aforesaid
shall be applicable. [16-D-F, 17·E]

B Collector of C.E. v. Jay Engineering Works Ltd., (1989) 39 E.L.T. 169
SC, relied on.

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 2891 of
1985.

c From the Judgment and Order dated 28.3.85 of the Central Excise
and Salt Act, Appellate Tribunal, New Delhi in 0. No. C. 279/85. •
B.B. Sawhney for Sawhney & Sawhney for the Appellant.

N.K. Bajpai, V.K. Verma and Ms. Sushma Suri for the Respondent.
D
The Judgment of the Court was delivered by

N.P. SINGH, J. This appeal has been filed against an order dated
28.3.1985 passed by the Customs, Excise & Gold (Control) Appellate
E Tribunal (hereinafter 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 not 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
F "excisable goods" covered by Notification No. 201n9-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 the 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
G 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.

It appears that under Rule 8 of the Central Excise Rules, 1944 by
Notification No. 178n7-CE dated 18.6.1977 general exemption of duty was
H granted in respect of excisable goods on which duty of excise is leviable
H.M.M. LTD.v. COLLECTOR OFC.E.[N.P.SINGH,J.) 15

and in the manufacture of which any goods falling under Tariff Item No. A
68 of the First Schedule to the Central Excise 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:
B
"In exercise of the powers conferred by sub-rule (1) of rule 8
of the Central Excise Rule, 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 June, 1977, the
Central Government hereby exempts all excisable goods C
(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 com-
ponent parts (hereinafter referrd as "the inputs"), have been used,
from so much of the duty of excise leviable thereon as is equivalent D
to the duty of excise already paid on the inputs'.
'
1

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 E
• 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, F
fruits, milk, cereals, flowers, starch, birds, eggs, meat, meat offlas,
animal blood, fish, crustaceans or molluscs, not elsewhere
specified."

According to the appellants, the expression pnt np in "unit containers" G
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. H
16 SUPREME COURT REPORTS [1994) SUPP. 4 S.C.R.

A The majority judgment pointed out that as the item IB covers
"prepared and preserved foods" there shall be a fallacy if it was held
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,
B 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
C 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.

From a bare reference to the Notification No. 201!79-CE, it appears
D 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 the excise already paid on
the inputs. Now the question which has to be determined is as to whether
E 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 back-
ground, can it be said that only the Horlicks, which can be held to be the
F prepared and preserved food was intended to be covered by Item No. IB?
This Court in the case of Collector of C.E. v. Jay Engineering Works Ltd.,
(1989) 39 E.L.T. 169 (S.C.), 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-C.E. In that connection, it was
said :-
G
'It appears that the Department's own instructions in their
Commodity Manual made it obligatory for every manufacturer to
affix the nameplates on the fans. In those circumstances, namely,
for marketing the nameplates, these were essential. In other words,
H they could not be marketed without the nameplates. The relevant
H.M.M. LTD. v. COLLECTOR OFC.E. [N.P.SINGH,J.] 17

particulars of the fan for the determination of duty, depended on A
the particulars which are contained only in the nameplates. The
Department's instructions requiring every manufacturer to affix the
nameplates on the fans, indicate that nameplate was an essential
ingredient to complete the process of manufacture for marketable
electric fans.
B
In those circumstances, in our opinion, the Tribunal was right
in arriving at the conclusion that the nameplate was not a piece of
decoration. Without the nameplate, the electric fans as such, could
not be marketed; and that the dealer was entitled to the benefit of
the Notification No. 201179-CE. for the purpose of obtaining C
proforma credit. Fans with nameplates, have certain value which
the fans without the nameplates, did not have. If that be so, then
the value added for the accretion of nameplate was entitled to
proforma credit in terms of the said notification. It is true that an
electric fan may perform its essential function without affixation
of the nameplate, but that is not enough. Electric fans do not D
become marketable products without affixation of nameplates."

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. 201179-C.E. aforesaid shall be applicable. The learned E
-- 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.

Accordingly, the appeal is allowed. The majority judgment of the
Tribunal is set aside. The order of the Collector (Appeals) is upheld. p
However, in the facts and circumstances of the case, there shall be no
orders as to cost.

G.N. Appeal allowed.