Modvat credit on inputs and packing materials remains available even where final goods are assessed on tariff value, not ad valorem basis.

Modvat credit on inputs and packing materials used in manufacturing final products remains admissible even when the final products are assessed on tariff value rather than on an ad valorem basis under Section 4. The decisive factor is actual use of the inputs or packing materials in the manufacture of the final product, not whether their cost is separately reflected in the assessable value. Where duty is fixed on tariff value or another specific basis, the requirement of tracing input cost into the valuation loses significance, and credit cannot be denied on that ground.

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Issues: Whether Modvat credit on inputs and packaging materials used in the manufacture of final products is admissible when the final products are assessed on tariff value and not on ad valorem assessable value under Section 4.

Analysis: The entitlement to Modvat credit under Rule 57A is not defeated merely because the final product is not assessed on the basis of Section 4 valuation. The decisive consideration is whether the inputs or packing materials are used in the manufacture of the final product. Where duty is levied on tariff value or on a specific basis, the requirement of showing inclusion of the input cost in the assessable value loses significance. The tariff value is fixed with reference to the product's wholesale price, and the cost of the inputs cannot be treated as wholly excluded from that value merely because the levy is not on ad valorem valuation. The consistent departmental circulars and tribunal decisions support admissibility of credit in such cases.

Conclusion: Modvat credit was admissible to the respondents on the inputs and packing materials, and the Revenue's challenge failed.

Ratio Decidendi: Modvat credit cannot be denied on the ground that the cost of inputs or packing materials is not separately included in the value of the final product where the final product is not assessed on an ad valorem basis under Section 4 of the Central Excise Act, 1944.

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