Wide meaning of inputs in manufacture supports Modvat credit for polythene bags used in batch-wise production.

Polythene bags used to dispense materials in batch-wise production were held to qualify as inputs used in or in relation to manufacture because the expression has a wide ambit and includes goods that assist or are connected with the manufacturing process even if they do not form part of the final product. On that basis, Modvat credit was admissible under Rule 57-A, and denial of credit was not sustainable. As credit was allowed, the associated demand of interest and penalty did not survive.

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Issues: Whether polythene bags used for dispensing materials in batch-wise production qualify as inputs used in or in relation to manufacture so as to allow Modvat credit under Rule 57-A of the Central Excise Rules, 1944.

Analysis: The polythene bags were used in the manufacturing process for dispensing materials necessary for batch-wise production. The expression "used in or in relation to manufacture" has a wide ambit and covers goods that assist or are connected with the process of manufacture, even if they do not become part of the final product. On that basis, the bags were treated as inputs within the scope of the rule.

Conclusion: Modvat credit was admissible on the polythene bags and denial of credit was not sustainable. As credit was allowed, the demand of interest and imposition of penalty did not survive.

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