Modvat credit on HDPE fabric used as bale cover allowed where no bags or sacks were made from the material.

HDPE fabric used only as a bale cover, and not converted into bags or sacks, did not fall within the Rule 57A exclusion for inputs made into bags or sacks. The decisive factual position was that no bags or sacks came into existence and the fabric was received in cut pieces solely for use as a bale cover for the finished product. On that basis, the statutory exclusion was not attracted, and Modvat credit was available on the fabric used in this manner. The departmental appeals were therefore not sustainable, and the credit claim was upheld.

---

---

Issues: Whether HDPE fabric used only as a bale cover, and not as bags or sacks, was excluded from the definition of inputs for Modvat credit under Rule 57A.

Analysis: The disputed factual position was that no bags or sacks came into existence at any stage, and the fabric was received only in cut pieces for use as a bale cover for the finished product. The exclusion under Rule 57A applied only to bags or sacks made out of fabric. Since the assessee did not manufacture bags or sacks from the fabric, the statutory exclusion was not attracted.

Conclusion: The assessee was entitled to Modvat credit on the fabric used as bale cover, and the departmental appeals were not sustainable.

Final Conclusion: The credit claim was upheld because the material was used as bale cover and not as bags or sacks within the meaning of the exclusion.

Ratio Decidendi: An exclusion relating to bags or sacks made out of fabric does not apply where the fabric is used only as bale cover and no bags or sacks come into existence.

---