MODVAT credit on packing tissue denied after waxing created a distinct finished product outside Rule 57D protection.

Tissue paper taken as packing input and then waxed by a job worker into wax paper did not qualify for MODVAT credit under Rule 57A because the waxing process created a distinct commodity with a different character, use and tariff classification. Rule 57D was inapplicable since it protects only exempt intermediate products arising in the course of manufacture of the final product; here, wax paper was not an intermediate product but a separate finished product produced from the tissue paper itself. Exemption notifications did not cure the defect in credit entitlement, because the objection related to credit on the input after conversion. MODVAT credit was therefore denied.

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Issues: Whether tissue paper, brought in as an input for packing purposes and later waxed through a job worker into wax paper, qualified for MODVAT credit when the wax paper was exempt from duty.

Analysis: Under Rule 57A of the Central Excise Rules, 1944, packing material could be treated as input, but the tissue paper in question could not be used as packing material as such and necessarily had to undergo waxing. The waxing process brought into existence a distinct commodity, wax paper, with different characteristics, use, and tariff classification. The benefit of Rule 57D applies only where an exempt intermediate product emerges in the course of manufacture of the final product. Here, the wax paper did not emerge as an intermediate product in the manufacture of the finished goods; it was produced out of the tissue paper itself and was, in effect, a finished product by itself. The reliance on the exemption notifications did not assist the assessee because the Revenue's objection was to the availability of credit on the input once it had been converted into wax paper.

Conclusion: MODVAT credit on the tissue paper was not available to the assessee, and the Revenue's appeal succeeded.

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