Modvat credit on packed inputs cannot be reversed merely because empty containers were later sold as scrap.

Modvat credit taken on duty paid calcium carbide received in packed containers was valid where the credit was based on gate passes under Rule 57G and covered the entire duty-paid value, including packing charges. Empty containers were not shown to be waste arising from processing of the inputs under Rule 57F(4), and there was no provision requiring pro rata exclusion of duty attributable to packing materials. The mere fact that the packing had scrap or reusable value did not justify reversal of credit, so the assessee's credit was upheld.

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Issues: Whether Modvat credit validly taken on duty paid on calcium carbide received in packed containers was liable to reversal merely because the empty containers or packing materials were later sold or disposed of.

Analysis: Credit was taken on the basis of gate passes under Rule 57G of the Central Excise Rules, 1944, on duty paid on the entire value of calcium carbide, including packing charges. The empty containers were not shown to be waste arising from processing of the inputs so as to attract Rule 57F(4) of the Central Excise Rules, 1944. The absence of any provision requiring pro rata exclusion of duty attributable to packing materials meant that credit lawfully taken on the duty-paid input could not be denied merely because the packing materials had scrap or reusable value.

Conclusion: The reversal of Modvat credit was not justified and the issue is decided in favour of the assessee.

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