Modvat credit on inputs for packaging materials was upheld where cartons were used in the biscuit packing process.

Modvat credit under Rule 57A was treated as available for raw materials used to make packaging materials such as cartons for biscuits, because the scheme covers goods used not only directly in manufacture but also in relation to manufacture. Materials converted into packaging articles and then used at the packing stage were regarded as part of the manufacturing process, and the narrower view that only ready-to-use packaging articles qualified was rejected. The enlarged concept of manufacture under Section 2(b) of the Central Excises and Salt Act, 1944 supported this broader eligibility for credit on inputs used to produce packaging materials employed in relation to the final product.

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Issues: Whether Modvat credit under Rule 57A was admissible on raw materials used to manufacture packaging materials such as cartons for packing biscuits.

Analysis: The relevant scheme under Rule 57A was construed broadly to cover not only goods directly used in the manufacture of the final product but also goods used in relation to such manufacture. The materials in question were processed into cartons and other packaging articles which were used at the packing stage of biscuits, and this use was treated as part of the manufacturing process. The view that only ready-to-use packaging articles could qualify was rejected in favour of the wider principle that inputs used to make packaging materials, when employed in relation to the manufacture of the final product, do not cease to be eligible merely because they are first converted into another intermediate form. The enlarged concept of manufacture under Section 2(b) of the Central Excises and Salt Act, 1944 supported this conclusion.

Conclusion: Modvat credit was admissible on the raw materials used for making the packaging materials, and the assessee succeeded on the issue.

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