MODVAT credit on packing material denied where paper bags were not integral to cement manufacture or marketability.

Packing material qualifies for MODVAT credit only if it is an integral and necessary part of manufacture or of making the final product marketable. Paper bags used for cement were held to be mere packing material, and cement could also be marketed in bulk, so the bags were not an input used in or in relation to manufacture under Rule 57A. MODVAT credit on the paper bags was therefore not admissible.

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Issues: Whether paper bags used as packing material for cement were eligible for MODVAT credit as inputs used in or in relation to the manufacture of cement under Rule 57A of the Central Excise Rules, 1944.

Analysis: The allowance of MODVAT credit depended on whether the goods claimed as input were sufficiently connected with the manufacture of the final product. On the facts, the paper bags were only packing material. Cement could also be marketed in bulk, showing that packing in paper bags was not a necessary step in the manufacturing process or an essential requirement for bringing the product into marketable existence. Even on a broad construction of the rule, the bags could not be treated as an input in the manufacture of cement or in relation to such manufacture.

Conclusion: The claim for MODVAT credit on paper bags was not admissible and the appeal failed.

Ratio Decidendi: Packing material is not an eligible input for MODVAT credit unless it forms an integral and necessary part of the manufacture of the final product or its marketability.

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