Tariff value on inclusive basis supports Modvat credit on packing and processing inputs used in manufacture.

When tariff value is fixed for finished goods under Section 3(2) of the Central Excise Act, 1944, the valuation is treated as inclusive of all elements used in manufacture, including packing and processing inputs. On that basis, the assumption that the tariff value excluded the cost of packing material, anti-static oil, lubricating oil, bobbins, spools and paper tubes was rejected. Modvat credit on such inputs used in converting POY into PTY was therefore held admissible, and the departmental challenge failed.

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Issues: Whether Modvat credit was admissible on packing material, anti-static oil, lubricating oil, bobbins, spools, paper tubes and similar inputs used in converting POY into PTY when tariff value was fixed for the finished goods.

Analysis: The valuation of excisable goods may be determined under Section 4 or Section 4A of the Central Excise Act, 1944, but where tariff value is fixed under Section 3(2) of the Central Excise Act, 1944, the finished goods are to be treated as valued on an inclusive basis for all elements going into their manufacture, including packing and processing inputs. On that basis, the assumption that the value of the inputs was excluded from the tariff value was rejected.

Conclusion: Modvat credit on the impugned inputs was rightly allowed and the departmental appeals failed.

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