Packaging materials and intermediate containers can qualify for MODVAT credit when used to make excisable goods marketable.

Plastic granules used to manufacture containers for packing excisable final products were treated as inputs under Rule 57A because the rule covered goods used in or in relation to manufacture, including packaging materials and the raw materials from which they are made. The broader meaning of manufacture under Section 2(f) of the Central Excises and Salt Act, 1944 and Chapter Note 4 of Chapter 33 supported the view that treatment making goods marketable forms part of manufacture. Credit was not denied merely because the containers were exempt from duty; they were treated as intermediate products for Rule 57D(2), so MODVAT credit remained available on the inputs used to produce them.

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Issues: Whether plastic granules used to manufacture containers for packing excisable final products qualified as inputs under Rule 57A and whether MODVAT credit could not be denied merely because the containers were exempt from duty.

Analysis: Rule 57A used an inclusive definition of inputs and covered goods used in or in relation to the manufacture of final products. The expression "packaging materials" was construed broadly to include the raw materials used to make containers, since such materials formed an integral part of the process of making the final goods marketable. Section 2(f) of the Central Excises and Salt Act, 1944 and Chapter Note 4 of Chapter 33 of the Central Excise Tariff Act, 1985 supported a wide meaning of manufacture, including treatment rendering goods marketable. The containers were also treated as intermediate products for the purposes of Rule 57D(2), and exemption of the containers did not defeat the assessee's entitlement to credit on the inputs used to make them. The Board's contrary clarification was not accepted.

Conclusion: The plastic granules were held to be eligible inputs for MODVAT credit, and the reference was answered in favour of the assessee.

Ratio Decidendi: Goods that are raw materials for packaging materials used to make excisable final products marketable fall within inputs used in relation to manufacture under Rule 57A, and credit cannot be denied merely because the intermediate containers are exempt from duty.

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