Modvat credit on glass bottle packing upheld for aerated water; exemption and credit schemes operate in different fields.

Modvat credit was admissible on duty paid for glass bottles used as durable and returnable packing for aerated water, because Rule 57A allowed credit on inputs used in or in relation to manufacture and the exemption notification operating under Rule 8(1) required valuation under Section 4, which excluded such packing from assessable value. The argument that credit would create a double benefit was rejected because the exemption and credit schemes operated in different fields, and the fact that aerated water was assessed on a specified basis did not exclude the packing materials from Rule 57A. The assessee was therefore entitled to set off the credit against duty on the final product during the notification period.

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Issues: Whether Modvat credit was admissible on the duty paid on glass bottles used as packing for aerated water, and whether the assessee could utilise such credit against duty on aerated water manufactured during the period when the relevant notification remained in force.

Analysis: Rule 57A of the Central Excise Rules permitted credit of duty paid on inputs used in or in relation to the manufacture of final products, subject to the notification and conditions prescribed. The exemption notification under Rule 8(1) required valuation of specified goods under Section 4 of the Central Excises and Salt Act, 1944, under which durable and returnable packing was excluded from value. Glass bottles used for aerated water were not treated as part of the assessable value for that exemption. The objection that allowing credit would amount to double benefit was rejected, because the exemption under Rule 8(1) and the credit mechanism under Rule 57A operated in different fields. The further objection that aerated water was assessed on a specified basis, and therefore packaging materials were outside Rule 57A, was also rejected.

Conclusion: The assessee was entitled to Modvat credit on the duty paid on the glass bottles and to utilise that credit against duty payable on the final products manufactured within the operative period of the notification.

Final Conclusion: The denial of Modvat credit was unsustainable and the assessee's entitlement to set off the credit against duty on aerated water manufactured during the relevant period was upheld.

Ratio Decidendi: Where a notification under the exemption scheme directs valuation under Section 4 and the packing material is durable and returnable, its cost is excluded from assessable value, and the simultaneous availability of exemption and Modvat credit does not constitute double benefit.

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