Modvat credit on carry bags denied where bags were not used as packing material and cost inclusion did not confer eligibility.

Modvat credit was held inadmissible on carry bags claimed as packing material under Rule 57A because they were not used to pack the footwear or its boxes; they were only placed inside the boxes for convenience and later used by retailers. Mere inclusion of the bags' cost in the assessable value did not make them eligible input material, and Notification No. 28/95-C.E. did not help because the bags were neither directly nor indirectly used in manufacture. Credit was disallowed, and the penalty was sustained, against the assessee.

---

---

Issues: Whether Modvat credit was admissible on carry bags claimed to be packing material under Rule 57A of the Central Excise Rules, and whether inclusion of their cost in the assessable value or reliance on Notification No. 28/95-C.E. altered that position.

Analysis: The carry bags were not used for packing the footwear or the cardboard boxes in which the footwear was packed. They were merely placed inside the boxes for convenience and were ultimately used by retailers at the time of sale. Merely including the cost of such material in the assessable value did not make it a qualifying packing material. The notification enlarging the scope of input to direct and indirect use did not assist, because the bags were neither directly nor indirectly used in the manufacture of the footwear.

Conclusion: Modvat credit on the carry bags was not admissible and the disallowance of credit and penalty was ; the finding is against the assessee and in favour of the Revenue.

Ratio Decidendi: For Modvat credit to be available on packing material, the article must in substance be used as packing material for the final product; mere inclusion of its cost in the assessable value does not by itself confer eligibility.

---