Modvat credit on damaged packing containers remained intact when unusable scrap arose during the packing process.

Modvat credit on plastic packing containers damaged during the packing of lubricants could not be reversed merely because the unusable containers were later cleared as waste and scrap. Once the containers became fit only for discard in the course of use, the assessee was not required to reverse credit or pay excise duty on their scrap clearance. The treatment was held to fall within Rule 57D(1) of the Central Excise Rules, 1944, and no material distinction was accepted between such damaged containers and other packing materials.

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Issues: Whether Modvat credit was required to be reversed, or excise duty paid, on plastic containers used for packing lubricants which were damaged during the packing process and disposed of as waste and scrap.

Analysis: The containers were found to have become unusable during the process of packing the lubricants. Once the packing material was damaged in the course of use and was thereafter fit only to be discarded as waste, the assessee could not be compelled to reverse the credit merely because the unusable containers were later cleared as scrap. The situation was treated as falling within Rule 57D(1) of the Central Excise Rules, 1944, and the attempted distinction between such containers and other packing materials was held to be without material difference.

Conclusion: Credit could not be denied or reversed, and no duty was payable on the damaged plastic containers cleared as waste and scrap.

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