MODVAT credit on outside-manufactured packing materials denied because Rule 57F(2) covers only intermediate products requiring further processing.

MODVAT credit on HDPE, LDPE and similar inputs was denied where the inputs were not used to make packing materials in the assessee's factory but were sent to outside processors, and the finished packing materials were brought back exempt from duty. Rule 57F(2) was held inapplicable because it contemplates removal of inputs for manufacture of intermediate products that require further processing in the factory before use in the final products. As the returned packing materials were already finished goods and not intermediate products, the claim that the inputs were used in or in relation to manufacture of the final cosmetics and toilet preparations was rejected.

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Issues: Whether MODVAT credit was admissible on HDPE, LDPE and similar inputs used to manufacture packing materials outside the factory, and whether Rule 57F(2) of the Central Excise Rules could be invoked for such packing materials.

Analysis: The inputs were not used by the appellants to manufacture the plastic jars and containers in their own factory. Those articles were made by processors outside the factory and were brought back as finished packing materials, which were themselves exempt from duty. Rule 57F(2) contemplates removal of inputs to another place outside the factory for manufacture of intermediate products that require further processing in the factory before use in the final products. Returned finished packing materials do not answer that description. Since the packing materials were exempt and not intermediate products, the claim that the inputs were used in or in relation to manufacture of the final cosmetics and toilet preparations was not accepted.

Conclusion: MODVAT credit was not admissible on the inputs, Rule 57F(2) did not apply, and the rejection of the claim was upheld against the assessee.

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