CENVAT credit on packing-material inputs remains admissible when job-worked sacks are used for packing dutiable final goods.

Credit on duty-paid PP/LDPE granules used to make sacks through a job worker was held admissible where the sacks were returned and used for packing dutiable sugar. The fact that the job worker cleared the sacks without duty under Notification No. 214/86-CE did not justify denial of CENVAT credit on the inputs used in the packing materials. The credit remained attributable to the manufacture of the assessee's dutiable final product, and the absence of a duty demand on the job worker did not change that position. The order allowing credit was upheld.

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Issues: Whether credit on duty-paid PP/LDPE granules could be denied because the granules were sent to a job worker under Rule 4(5) of the CENVAT Credit Rules for manufacture of sacks, and the sacks were received back and used for packing the dutiable final product without payment of duty by the job worker.

Analysis: The inputs were sent to the job worker for manufacture of packing materials and the sacks were received back by the assessee and used in packing sugar on which duty had been paid. The fact that the job worker cleared the sacks without duty by availing the benefit of Notification No. 214/86-CE did not justify denial of credit on the inputs used in making the packing materials. The credit was otherwise attributable to the manufacture of the assessee's dutiable final product, and the absence of duty demand on the job worker did not alter that position. The cited supplementary instructions also supported the treatment of packing-material inputs as eligible inputs in relation to manufacture.

Conclusion: Credit on the granules was admissible, and the order allowing credit was upheld.

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