Modvat credit on returnable packing material denied where its value was excluded from assessable value; penalty reduced.

Modvat credit on returnable packing material was held inadmissible where the price of the plastic drums was not included in the assessable value of the final products and the drums were returnable. The authority distinguished precedent relied on by the assessee because that case concerned packing material whose value had been included in the product value, and the Board's Circular No. 37/90 did not assist the claim on these facts. The penalty was also found excessive in the circumstances and was reduced to a lesser amount.

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Issues: (i) Whether Modvat credit was admissible on returnable packing material when its price was not included in the assessable value of the final products. (ii) Whether the penalty required interference.

Issue (i): Whether Modvat credit was admissible on returnable packing material when its price was not included in the assessable value of the final products.

Analysis: The admission of the respondent's General Manager showed that the price of the plastic drums was not included in the assessable value of the final products and that the drums were returnable. On that factual basis, the Board's Circular No. 37/90 did not support credit, and the decision allowing credit on the basis of a chartered accountant's certificate was not sustainable. The relied-upon precedent dealing with packing material whose value had in fact been included in the product value was held inapplicable.

Conclusion: Modvat credit was not admissible to the assessee on the facts of the case, and the Revenue succeeded on this issue.

Issue (ii): Whether the penalty required interference.

Analysis: Although the order granting credit was set aside, the penalty was reconsidered in light of the total Modvat amount involved. The adjudicating authority's penalty was found excessive for the circumstances and was brought down.

Conclusion: The penalty was reduced to Rs. 2,500/-.

Final Conclusion: The appeal succeeded substantially on the credit issue, while the penalty was modified to a lesser amount.

Ratio Decidendi: Modvat credit on returnable packing material is not admissible where the value of such packing material is not included in the assessable value of the final product.

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