# M/s Flex Engineering Ltd., NOIDA v. Commissioner of Central Excise, Meerut

- **Citation:** (2002) 2 ILRA 591
- **Court:** High Court of Judicature at Allahabad
- **Decided:** 2002-08-26
- **Case number:** Central Excise Reference No. 11 of 2001
- **Bench:** S.K. Sen, C.J. Ashok Bhushan
- **Source:** https://unisonlegal.in/judgment/allahabad-high-court/m-s-flex-engineering-ltd-noida-v-commissioner-of-central-excise-meerut-39866
- **Pages:** 9

## Headnote

Act
1944
2
(f)
-
Manufacture - Plastic film/poly paper -
user for Trail/Demonstration - can not
be treated as manufacture - termed as
imput.

Held- para 18

In this view of the matter, and having
regard to the scope of Rule 57-A of the
Act, we are unable to accept the
contention
of
the
applicant
that
materials used for testing the fully
finished machines would also be the
materials used in or the relation to them
manufacture of the final product namely,
the extrusion machine. IN the instant
case, we find that Form Fill and Seal
Machineies
used
for
testing
its
performance. Testing performance is not
a process of manufacture and, therefore,
flexible plastic films used for testing the
performance of the machine cannot be
termed as 'inputs' for the purpose of
allowing MODVAT credit of duty paid on
flexible plastic films.
Case Law Discussed:
1990 (80) ELT (Tribunal) 475
2000 (124) ECT 267
1996 (88) ELT 273
2000 (20) ELT 105
1989 (43) ELT 201 (SC)
1989 (40) ELT280 (SC)
1989 SCC (1) 602
1977 (I) ELT (J-199)
1989 (43) ELT 214
1965 STC 563

## Text

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2 All] M/s Flex Engineering Ltd., NOIDA V. Commissioner of Central Excise, Meerut
591
APPELLATE JURISDICTION
CIVIL SIDE
DATED: ALLAHABAD AUGUST 26, 2002

BEFORE
THE HON'BLE S.K. SEN, C.J.
THE HON'BLE ASHOK BHUSHAN, J.

Central Excise Reference No. 11 of 2001

M/s Flex Engineering Limited, Noida

 ...Applicant
Versus
Commissioner of Central Excise, Meerut

 ...Respondents

Counsel for the Appellant:
Sri A.P. Mathur

Counsel for the Respondents:
Sri S.P. Kesharwani

Centre
Excise
Act
1944
2
(f)
-
Manufacture - Plastic film/poly paper -
user for Trail/Demonstration - can not
be treated as manufacture - termed as
imput.

Held- para 18

In this view of the matter, and having
regard to the scope of Rule 57-A of the
Act, we are unable to accept the
contention
of
the
applicant
that
materials used for testing the fully
finished machines would also be the
materials used in or the relation to them
manufacture of the final product namely,
the extrusion machine. IN the instant
case, we find that Form Fill and Seal
Machineies
used
for
testing
its
performance. Testing performance is not
a process of manufacture and, therefore,
flexible plastic films used for testing the
performance of the machine cannot be
termed as 'inputs' for the purpose of
allowing MODVAT credit of duty paid on
flexible plastic films.
Case Law Discussed:
1990 (80) ELT (Tribunal) 475
2000 (124) ECT 267
1996 (88) ELT 273
2000 (20) ELT 105
1989 (43) ELT 201 (SC)
1989 (40) ELT280 (SC)
1989 SCC (1) 602
1977 (I) ELT (J-199)
1989 (43) ELT 214
1965 STC 563

(Delivered by Hon'ble S.K. Sen, C.J.)

1. Brief facts of the case, inter alia,
are that the applicant - M/s Flex
Engineering
Limited
manufactures
packaging machines of various types
classifiable under Chapter 84 of the
Central Excise Tariff. It is the case of the
applicant that it was availing the benefit
of MODVAT credit on laminated plastic
films and poly papers. Show cause notices
were issued to applicant with regard to
denying the benefit on the above inputs
on the ground that they are used for the
purpose of testing of their final product
'packaging machines' and is not an input
as defined under Rule 52-A of the Central
Excise Rules. The adjudicating authority
denied the benefit of MODVAT credit.
The applicant preferred an appeal, which
too was rejected. The applicant filed
appeals before the Customs, Excise and
Gold
(Control)
Appellate
Tribunal,
Following the earlier order in the case of
the same applicant, the Tribunal, on
17.04.1998, upheld the order passed by
the Commissioner (Appeals). In the
meantime, in regard to the earlier order
court, on 01.07.1997, had directed the
Tribunal to refer questions of law to this
court for opinion. Accordingly, the
following questions of law have been
referred to this Court for opinion:-

1.
"Whether, in the circumstances of
the present case, facts of which are not in
dispute, duties paid on material, namely,
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plastic films/poly paper used for testing
machines
for
forming
commercial/
technical
opinion
as
to
their
marketability/excistability
would
be
eligible to be taken as credits under rule
57-A read with relevant notification?"

2.
Whether such use of material in
testing in view of the purposes mentioned
above, could be said to be 'use in the
manufacture of' or use in relation to the
manufacture of the final products viz.,
Machines as assembled?"

2. Heard Sri A.P. Mather, learned
counsel for the applicant and Sri S.P.
Kesharwani, learned Standing Counsel for
the Respondent. Both the parties have
also submitted their written note of
submissions. We have carefully gone
through the entire documents, placed
before us, including the written note of
submissions.

3. It has been contended by Mr.
Mathur, learned counsel for the applicant
that there are not testing machines and the
laminated plastic films and poly papers
are not used in any testing machines . On
the other hand, laminated Plastic Films
and Poly Papers are used by the applicant
in the process of manufacture of filling
and sealing machines, which is also
evident from order No. Ref/42/96-NB
passed by the Tribunal on the reference
application filed by the applicant.

4. The learned counsel has drawn
our attention to the relevant portion of the
reference application, which is quoted
herein below:

"This is a reference application under
Section 35 G(1) of the Central Excise and
Salt Act 1944 arising from the order of
this Tribunal dated 24.11.1995. The
question arose in this case whether
flexible plastic films/poly paper can be
regarded as an input for the manufacture
of filling and sealing machines (F.S.
Machines) and also whether the cost of
flexible plastic films/poly paper was
eligible for MODVAT Credit as an
input."

He has further referred to final order
dated 24.11.1995 passed by the Tribunal
on the appeal of the applicant, which is as
follows:

"Heard the submissions. On careful
consideration of the submissions made
before us we find that the question in
short compass is whether MODVAT
Credit under rule 57A of theCentral
Excise Rules, 1944, was admissible on
flexible plastic films used in testing the
performance of the form fill and sealing
machines."

5. Contention of the learned counsel
for the applicant is that there are no test
machines and the flexible plastic films or
poly papers are used directly for testing
the form fill and sealing machines in the
process of manufacturing the same by the
applicant. Accordingly, he has submitted
that the applicant is fully eligible to avail
MODVAT Credit on flexible plastic
films/poly paper used as inputs in testing
the form fill and sealing machines in the
process of the manufacturing the same in
terms of Rule 57A of the Central Excise
Rules, 1944.

Rule 57 A, at the relevant time,
provided as under:

"Rule 57A. Applicability -(1) The
provisions of this section shall apply to
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2 All] M/s Flex Engineering Ltd., NOIDA V. Commissioner of Central Excise, Meerut
593
such finished excisable goods (hereinafter
referred to as the "final products") as the
Central Government may, by notification
in the Official Gazette, specify in this
behalf, for the purpose of allowing credit
of any duty of excise or the additional
duty under section 3 of the Customs
Tariff Act, 1975 (51 of 1975), as may be
specified
in
the
said
notification
(hereinafter referred to as the "specified
duty") paid on the goods used in or in
relation to the manufacture of the said
final products (hereinafter referred to as
the "inputs") and for utilizing the credit so
allowed towards payment of duty of
excise leviable on the final products,
whether under the Act or under any other
Act, as may be specified in the said
notification, subject to the provisions of
this section and the conditions and
restrictions that may be specified in the
Notification:

6. Provided that the Central
Government may specify the goods or
classes of goods in respect of which the
credit of specified duty may be restricted.

Explanation - (For the purpose of
this rule, "inputs" includes -

(a) inputs which were manufactured and
used within the factory or production in
or, in relation to the manufacture of final
products, and

(b) Paints and packaging materials. (But
does not include-)

(i) Machines,
machinery,
plant,
equipment, apparatus, tools or appliances
used for producing or processing any
goods or for bringing about any change in
any substance in or in relation to the
manufacture of the final produces;
(ii) Packaging materials in respect of
which any exemption to the extent of the
duty of excisable payment on the value of
the packaging materials in being availed
of for packaging any final products;

(iii) Packaging materials the cost of
which is not included or had not been
included during the preceding financial
year in the assessable value of the final
products under section 4 of the act;

(iv) Cylinders for packing gases;

(v) Plywood for tea chests).

7. Mr. Mathur, learned counsel has
further submitted that the provisions of
the said rule shall apply to such finished
excisable goods (hereinafter referred to as
the
final
products)
as the
Central
Government may, by notification in the
official gazette, specify in this behalf, for
the purpose of allowing credit or any duty
of excise or the additional duty under
Section 33 of the Customs Tariff Act
1975 (51 of 1975), as may be specified in
the said notification (hereinafter referred
to as the specified duty), paid on the
goods used in or in relation to the
manufacture of the said final products -
whether directly or indirectly and whether
contained in the final product or not -
(hereinafter referred to as the inputs) and
for utilizing the credit so allowed towards
payment of duty of excise leviable on the
final products, whether under the Act or
under any other Act,, as may be specified
in the said notification, subject to the
provisions of this Section and the
conditions and restrictions that may be
specified in the notification.

8. It has been further submitted by
the learned counsel for the applicant that
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undoubtedly Laminated Plastic Films/
Poly Paper and packaging machines are
specified input and final products under
Rule 57A and hence MODVAT Credit
should be available to the applicant. He
has also referred to section 2(f) of the
Central Excise Act 1944 and has
submitted that "manufacture" includes
any process-

(i) Incidental
or
ancillary
to
the
completion of a manufacture product; and

(ii) Which is specified in relation to any
goods in this section or chapter notes of
the schedule to the Central Excise Tariff
Act 1985.

9. It is the contention of the learned
counsel for the applicant that the applicant
is engaged in
the
manufacture of
Automatic
Form
Fill
and
Sealing
Machines, which are used by the
purchasers for packing and sealing their
produces in plastic pouches. Before the
machine is ready to be marketed and can
be said to be finally manufactured, the
applicant has to use Laminated Plastic
Films/Poly Paper for the purpose of
testing, turning and adjusting various
parts of the machine so as to ensure that
they are fit and ready for packing and
sealing the required size of pouches. It is
the case of the applicant that the
purchasers place their orders to the
applicant mentioning the specifications of
the pouches, which they require for
packing and sealing their products. Unless
and until tuning and adjustment is done
by the applicant with the help of
Laminated Plastic Films/Poly Paper, the
machine cannot be tuned and adjusted in
accordance with the purchase order and
the same will not be purchased by the
purchaser. In other words, without tuning
and adjustment to make the machine in
conformity with the specifications of the
purchaser, it cannot be said that the
machine
has
been
manufactured.
Manufacturing is not complete unless the
tuning and adjustment has been done as
per specification given by the purchaser.

10. It has further been submitted by
the learned counsel that under the Central
Excise Act, it is nowhere defined that at
what stage various products, covered by
the Central Excise Tariff Act, 1985, will
be termed as completely manufactured. In
the applicant's case the machines are
completely manufactured only after the
same are tested. The machines are tailor
made and each machine is to import a
distinct and different result. If the results
are not as per the requirement of the
customer,
the
machine
loses
its
marketability because it is of no use to
any other customer. The Laminated
Plastic films are used to find out as to
whether the result desired to be obtained
is available from the machine so made.
Unless this is done the process of
manufacture
is
not
complete.
The
machines manufactured by the applicant
is entered in the RG1 Register (a Register
prescribed for entering fully manufactured
goods) only after the same are tested by
the applicant as the process of such
testing is an essential ingredient of
manufacture.
In
the
instant
case,
admittedly, the goods are manufactured
on the specific order and design of the
customer with specified test mandatory
before delivery of goods. Under the
circumstances, the manufacture can be
deemed to be complete after the
qualitative and other specification tests
are undergone. The tests conducted by the
applicant are the parts of the process of
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2 All] M/s Flex Engineering Ltd., NOIDA V. Commissioner of Central Excise, Meerut
595
manufacture and without the same the
manufacture is not complete.

11. In support of his contention
learned counsel has relied upon the
following decisions:

1.
1990(50) E.L.T. 475 (Tribunal), D.S.
Screen Pvt Ltd. Versus Collector of C.Ex.
2.
2000 (124) E.L.T. 267 (Tribunal),
Prayas Castings Ltd. Vs. Collector of
Central Excise, Baroda.
3.
1989 (4) E.L.T. 201 (S.C.) Collector
of C.Ex. versus Eastend Paper Industries
Ltd.
4.
1996 (88) E.L.T. 273 (Tribunal)
Maschinenfabrik
Polygraph
(I)
Ltd.
Versus Commissioner of C.Ex., Pune.
5.
1996 (83) E.L.T. 117 (Tribunal),
Walchanager Inds. Ltd. Versus collector
of C.Ex., Pune/Bombay.
6.
2000 (120) E.L.T. 105 (Tribunal),
Commissioner of C.Ex. Surat vs. Kolsite
Maschine Fabrik Ltd.

12. It is also the contention of the
learned counsel that the expression "in or
in relation to the manufacture" used in
Rule 57A is a term of extremely wide
import and it does not admit of any
exclusion on the basis of the stage of
production or whether the inputs have
been
used interior or posterior to
manufacture. If the use of inputs has
nexus to the manufacture, that would
suffice. However, in the instant case, the
applicant has used the inputs, in question,
in the course of manufacture itself for the
purposes
of
tuning,
adjusting
and
finishing the machine so as to make it in
conformity with specifications mentioned
in the purchase order. The inputs i.e.
Laminated Plastic Films/Poly paper are
used by the applicant in or in relation to
the
manufacture
of
the
machines.
According to the learned counsel there is
no scope for doubt when the raw
materials/inputs are actually used in the
main stream of manufacture of final
products, that is, actually used in the
physical
or
chemical
process
of
manufacture. It is certainly an input used
in the manufacture of final products.
Doubt may arise only in regard to use of
some articles not in the main stream of the
manufacturing process but in another
scheme of manufacturing something,
which is to be used for rendering final
product marketable or used otherwise in
assisting the process of manufacure. Such
doubt is set at rest by use of the words
"used in relation to the manufacture". The
use of Laminated Plastic films/Poly Paper
is for rendering the final products
marketable and without the use of the
same machines cannot be called as fully
manufactured.

13. Learned counsel has further
submitted that in the instant case the
goods manufactured by the petitioners
are, admittedly, tailor made according to
specific order and design of the customer
with specified test mandatory before
delivery of goods. Demonstration of
goods is always conducted on the goods,
which have been cleared from the factory.
In the instant case, the goods are not
cleared from the factory and the rests are
conducted in the process of manufacture
of the said goods by the applicant in the
factory itself. No adverse inference can be
drawn against the applicant even if the
tests are conducted in the presence of the
representative
of
the
customers.
Accordingly, learned counsel claims that
benefit of MODVAT Credit should have
been allowed to the applicant in the
instant case and there is no scope for
denial of the same.
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14. It has been submitted on behalf
of the respondent that finding of the
Tribunal is that fill and seal machine is
used for testing the performance. That
being so, it is not a process of
manufacture
and,
therefore,
flexible
plastic
films
used
for
testing
the
performance of the machine cannot be
termed as inputs for the purpose of
allowing MODVAT Credit of duty paid
on flexible plastic films. It has also been
mentioned on behalf of the respondent
that the applicant has annexed purchase
order, which appears at pages 100 and
101 of the paper book and under the
column Inspection/trial the contractual
obligation is written, which is reproduced
below:

"Inspection/Trail will be carried out
at your works in the presence our
Engineer before dispatch of equipment
for the performance of the machine."

15. In fact, it is contention of the
learned counsel for the applicant that the
purchase order and the condition as
aforementioned have been relied upon by
him and he urged that the plastic
films/poly papers used for testing the
performance amounts to process of
manufacture and, therefore, is an input.
Learned counsel for the respondent has,
however, submitted before us that a bare
perusal of the conditions clearly shows
that
the
aforesaid
argument
is
misconceived.

16. Learned counsel for the
respondent has relied upon Section 2(f) of
the Central Excise Act, 1944 which
defines the term 'manufacture' and
submitted that the word "manufacture"
shall be construed accordingly and shall
include not only a person who employs
hired Labour in the production or
manufacture of excisable goods, but also
a person, who engages in the production
or manufacture, on his own account.
Learned counsel for the respondent has
also referred to Rule has submitted that
the term 'input' includes (a) inputs, which
were manufactured and used within the
factory of production in or, in relation to
manufacture of final products, and (b)
paints and packaging materials. It is,
therefore, implied from the aforesaid
provision that only those goods, which are
used within the factory in or, in relation to
the manufacture of final products, can be
regarded as "input". Thus the most
important term requiring interpretation is
the interpretation of the term "in or in
relation to the manufacture". It has been
contended by the learned counsel for the
respondents that it is clear from the
definition of the term "manufacture", as
provided in Section 2 (f) of the Act that
"manufacture" is a process to the
completion of a manufactured product
and in the instant case the same is
complete in all respect and the machines
so manufactured were final product and
the plastic films/poly papers used for
testing
machine
is
after
complete
manufacturing of machine and unless the
machine
has
been
completely
manufactured, no testing is possible. It is
apparent that in fact the plastic films/poly
papers used for testing the performance of
machine is merely for the satisfaction as
to its performance and there is no scope
for considering the same to have been
used in or in the materials used for the
manufacture.

17. We have considered the
submissions made by learned counsel for
the parties and the decision cited by them.
The use of laminated plastic films and
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2 All] M/s Flex Engineering Ltd., NOIDA V. Commissioner of Central Excise, Meerut
597
poly paper for filling and sealing
machine, used for testing the performance
of machine for inspection/trail in the
presence of Engineer before dispatch of
the equipments, cannot be termed as
"inputs" for the purpose of allowing
MODVAT Credit duty paid on flexible
plastic films. Section 2(f) of the Central
Excise Act, 1944 defines the term
"Manufacture" and from this definition, it
clearly implies that use of plastic
film/poly paper for the purpose of
inspection/trail or demonstration is not
part
of
the
manufacturing
process.
Learned
counsel
for
the
applicant,
however, has relied upon the decision of
the Supreme Court in the case of
Collector of Central Excise Vs. Eastend
Paper Industries Ltd. Reported in 1989
(43) E.L.T. 201 (S.C.) wherein it has held
that since wrapping paper is marketed in
packed
or
wrapped
condition,
the
wrapping paper used in wrapping of paper
is to be treated as raw material or
component part for other variety of paper
which is wrapped. Accordingly, it was
held that wrapping paper, so consumed or
utilized, would be entitled to exemption
under Notification No. 18 A/83-C.E. In
that view of the situation, wrapping paper
should be treated as raw material.
"Manufacture" in the sense it is used in
the Excise law, was not complete until
and unless wrapping was done. It is
settled law that excise is a duty on
manufacture. Manufacture is the process
or activity, which brings into existence
new, identifiable and distinct goods.
Goods have been understood to be articles
known as identifiable articles known in
the market as goods and marketed or
marketable in the market as such. This
view finds support from the decisions of
the Supreme Court in Bhor Industries
Ltd. Bombay Vs. Collector of Central
Excise, Bombay - 1989 (40) E.T.L. 280
(S.C.) - 1989 (1) SCC 602,; South Bihar
Sugar Mills Ltd. Etc. Vs. Union of
India and ors. 1978 (2) E.L.T. (J. 366 )
S.C.) - 1968 (3) SCR 21; Union Bank of
India Vs. Delhi Cloth and General
Mills Ltd. - 1977 (1) E.L.T. (J 199) (SC)
= 1963 Supp. 1 SCR 586; Union Carbide
India Ltd. Vs. Union of India and Ors.
(1986 (24) E.L.T. 169) and Civil Appeal
No. 2215 (NA) of 1988 - Collector of
Central
Excise,
Baroda
Vs.
M.s
Ambalal Sarabhai Enterprises - 1989
(43) E.L.T. 214 (S.C.) judgment delivered
on 10th August 1989. In the case of
Empire Industreis Ltd. And Ors. Vs.
Union Bank of India and Ors 1985 (2)
E.L.T. 179 (S.C.), reported in paragraph 4
of the Judgment, the Supreme Court has
explained the concept of "Process" in
Excise Law. In view of the principle laid
down therein and other relevant decisions,
processes incidental or ancillary to
wrapping are to be included in the process
of manufacture, manufacture in the sense
of bringing the goods into existence as
these are known in the market as not
complete until these are wrapped in
wrapping paper. The Supreme Court in
the case of J.K. Cotton & Spinning &
Weaving Mills Co. Ltd. Vs. Sales Tax
Officer reported in 1965 STC 563 (S.C.),
while construing the expression 'in the
manufacture or processing of goods for
sale' in the context of Sales Tax Law,
though the concept is different under the
Excise Law, has held that manufacture of
goods should normally encompass the
entire process carried on by the dealer of
converting raw materials into finished
goods. Where any particular process, the
Supreme Court further emphasized, is so
integrally connected with the ultimate
production of goods that, but for that
process, manufacture or processing of
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goods
would
be
commercially
inexpedient, articles required in that
process, would fall within the expression
'in the manufacture of goods'. The
Supreme Court further illustrating the
position, observed that "for instance in the
case of a cotton textile manufacturing
concern, raw cotton undergoes various
process before cloth is finally turned out.
Cotton is cleaned, carded, spun into yarn,
then cloth is woven, put on rolls, dyed,
calendared
and
pressed.
All
these
processes would be regarded as integrated
process
and
included
"in
the
manufacture" of cloth. It would be
difficult to regard goods used only in the
process of weaving cloth and not goods
used in the anterior processes as goods
used in the manufacture of cloth. To read
the expression "in the manufacture" of
cloth in that restricted sense would raise
many
anomalies.
Raw
Cotton
and
machinery for weaving cotton and even
vehicles for transporting raw and finished
goods would qualify under rule 13, but
not spinning machinery, without which
the business cannot be carried on". The
judgment and decisions in the case of
Collector of Central Excise Vs. Jay
Engineering Works Ltd. Reported in
1989 (3) E.L.T. 169 (S.C.) may also be
taken note of. In the aforesaid case before
the Supreme Court, the respondent was a
manufacturer of electric fans and brought
into its factory nameplates under Tariff
Item 68 of the erstwhile Central Excise
Tariff. The nameplates were affixed to the
fans
before
marketing
them.
The
respondent
claimed
the
benefit
of
proforma credit in terms of Notification
No. 20-1/79 dated 4th June, 1979, which
was for the purpose of relief on the duty
of excise paid on goods falling under
Tariff item 68, when these goods were
used in the manufacture of other excisable
goods. The said notification stated that in
superssion of the Notification No. 178/77
of the Central Excise dated 18th June,
1979, all excisable goods on which duty
of excise was leviable and in the
manufacture of which any goods falling
under Item No. 68 have been used, were
exempted from so much of the duty of
excise leviable thereon as was equivalent
to the duty of excise already paid on the
inputs. In that case, the question before
the Tribunal was whether the nameplates
could be considered as component part of
the electric fan, so as to be eligible for
proforma credit under the exemption
notification. It was found by Tribunal that
no electric fans could function without the
nameplates, for actual marketing of the
fans, the affixation of the nameplate was
considered an essential requirement. To
be able to be marketed or to be
marketable, it appears to us, that it was an
essential requirement to be goods, to be
wrapped in paper. Anything required to
make the goods marketable, must form
part of the manufacture and any raw
material or any materials used for the
same would be component part for the
end product. In the instant case, however,
laminated plastic/poly paper did not form
part of the manufacturing process nor
became part of the package machine of
various types sold in market. They were
only used for the purpose of testing which
could not form part of the manufacture.
The applicability of MODVAT is covered
by rule 57-A of the Central Excise Rules,
according to which, credit of duty paid on
goods used on or in relation to the
manufacture of the final product, namely,
the inputs, can be allowed for utilizing
towards payment of duty on the final
product. In this case before us, the
admitted position is that the extrusion
machines manufactured by the applicant,
http://www.allahabadhighcourt.nic.in
2 All] The Additional Commissioner of Income Tax V. Ram Prasad
599
after being fully manufactured, are tested
by feeding them with plastic granules to
see
whether
the
machines
so
manufactured produce lay flat tubing
without any defects. Therefore, the plastic
granules are used after the final product,
namely,
the
extrusion
machine,
manufactured by the applicant is fully
finished. It is only to detect defects, if
any, in the finished product.

18. In this view of the matter, and
having regard to the scope of Rule 57-A
of the Act, we are unable to accept the
contention of the applicant that materials
used for testing the fully finished
machines would also be the materials
used in or in relation to the manufacture
of the final product, namely, the extrusion
machine. In the instant case, we find that
Form fill and Seal Machine is used for
testing
its
performance.
Testing
performance
is
not
a
process
of
manufacture
and,
therefore,
flexible
plastic
films
used
for
testing
the
performance of the machine cannot be
termed as "inputs" for the purpose of
allowing MODVAT Credit of duty paid
on flexible plastic films.

19. In the above facts and
circumstances of the case, we are unable
to accept the contention of the applicant.
Accordingly, both the questions are
answered in the negative, i.e. against the
applicant
and
in
favour
of
the
respondents.

The reference stands disposed of
accordingly.
---------
REVISION JURISDICTION
CIVIL SIDE
DATED: ALLAHABAD AUGUST 26TH , 2002

BEFORE
THE HON'BLE S.K. SEN, C.J.
THE HON'BLE ASHOK BHUSHAN, J.

I.T.R. No. 205 of 1983

The Additional Commissioner of Income
Tax, Lucknow

 ...Applicant
Versus
Ram Prasad

 ...Respondent

Counsel for the Applicant:
Sri Prakash Krishna

Counsel for the Respondent:
Sri V.K. Rastogi

Income Tax Act 1961 - Section 40 (b)
whether
the
interest
paid
to
the
Assessee can not be included in the hand
of U.D.F. Firm ? held 'No'

Held - Para 14 & 15

It appears that the Supreme Court in the
case of M/s Brij Mohan Das Laxman Das
(Supra) held that even for the period
anterior to April 1, 1985 any interest
paid to a partner, who is a partner
representing his Hindu undivided family
on the deposit of his personal/individual
funds, does not fall within the mischief
of clause (b) of Section 40 of the Act and
agreed with the view of Rajasthan High
Court Explanation 2, in the context of
clause (b) of Section 40, is declaratory in
nature.

In the case of M/s Suwala Anandilal Jain
Vs. Commissioner of Income Tax, Bihar,
Ranchi reported in AIR 1997 SC 1278,
the Supreme Court followed the same
principle of law laid down earlier in the
case of M/s Brij Mohan Das Laxman Das
(Supra).
Case law discussed:
1958 I.T.R. 312