Modvat credit on raw material used to make packing bags remains admissible under the packing material rule.

Modvat credit was held admissible on duty paid plastic materials used to manufacture bags employed as packing material for finished goods. The exclusion in clause (b) of the Explanation to Rule 57A of the Central Excise Rules, 1944 was read as not barring credit for raw material used to make packing material. The Tribunal relied on the settled view reflected in Madras High Court and earlier Tribunal rulings, as well as the Ministry of Finance circular dated 30-6-1997, which clarified that "packing material" includes both ready-to-use packing material and the raw material used to manufacture it.

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Issues: Whether Modvat credit was admissible on duty paid on plastic materials used to manufacture bags employed for packing the assessee's finished goods.

Analysis: The exclusion in clause (b) of the Explanation to Rule 57A of the Central Excise Rules, 1944 did not bar credit in respect of raw material used to make packing material. The Tribunal followed the settled view reflected in the Madras High Court and prior Tribunal decisions, which had been adopted by the Ministry of Finance in its circular dated 30-6-1997. That circular clarified that "packing material" covers not only ready-to-use packing material but also the raw material used to manufacture such packing material.

Conclusion: Modvat credit was admissible on the plastic materials used to make the packing bags, and the appeal failed.

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