Modvat credit on cement packing bags was admissible before 17-9-1990 because packing formed part of manufacture.

HDPE bags or sacks used for packing cement were treated as eligible Modvat inputs for the period before 17-9-1990 because they were classifiable under heading 3923.90, the Section 4 exclusion for packing materials did not apply on the facts, and packing cement was regarded as part of manufacture as a process incidental or ancillary to completion of the product. A later notification excluding such bags from the definition of input was taken as indicating that they were otherwise within Rule 57A before its issue. Accordingly, Modvat credit was admissible for the pre-17-9-1990 period.

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Issues: Whether HDPE bags or sacks used for packing cement were eligible for Modvat credit for the period prior to 17-9-1990.

Analysis: The goods were held classifiable under heading 3923.90 and not under Chapter 63, so the classification objection did not defeat eligibility. The exclusion relating to packing materials whose cost is not included in the assessable value under Section 4 did not apply, because cement was chargeable to specific duty and the cost of packing was not shown to have been excluded in a manner that would disqualify the inputs. Packing of cement in bags was treated as part of the manufacturing process, since manufacture includes processes incidental or ancillary to completion of the product. The later notification excluding such bags from the definition of input was treated as significant, because it showed that they were otherwise within the scope of Rule 57A before its issue.

Conclusion: Modvat credit on HDPE bags or sacks used for packing cement was admissible for the period before 17-9-1990, and the assessee's claim succeeded.

Ratio Decidendi: Packing materials used in completing the marketed product are inputs for Modvat purposes where packing forms part of manufacture, and their eligibility is not negatived merely because the final product is assessed at a specific rate of duty.

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