Input credit cannot be denied merely because packing is not manufacture when duty-paid inputs are used in the process.

Input credit under Rule 57A could not be denied merely because the packing activity was later treated as not amounting to manufacture. The Tribunal applied the principle that central excise law makes no distinction between manufacture for levy and manufacture for input credit, and that credit remains available where duty-paid goods are used in or in relation to the manufacturing process, even if the finished product may not attract duty. Once credit is validly taken and utilised, recovery is not sustainable solely on the ground that manufacture is disputed. The demand for reversal was therefore held unsustainable.

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Issues: Whether credit taken under Rule 57A on duty-paid unpacked detergent bars used for packing could be denied on the ground that the packing activity did not amount to manufacture.

Analysis: The Tribunal noted that the earlier decisions had held that there is no distinction in central excise law between manufacture for levy and manufacture for input credit, and that credit is available even where the finished product may not attract duty, so long as the credited goods are used in or in relation to the manufacture. It also relied on decisions holding that once the credit is validly taken and utilised, further recovery would not arise merely because duty on the finished goods is questioned on the basis that there was no manufacture.

Conclusion: The credit could not be denied on the ground that the packing activity was not manufacture, and the demand for recovery was unsustainable.

Ratio Decidendi: Credit under the input-credit scheme cannot be disallowed merely because the final activity is held not to be manufacture, if the duty-paid goods are used in or in relation to the manufacturing process and the statutory conditions for credit are otherwise satisfied.

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