MODVAT credit on packaging material extends to raw tin sheets used to make exempt intermediate containers for packed vanaspati.

Tin sheets used to manufacture containers for packing vanaspati were treated as eligible MODVAT input under Rule 57A, because packaging material includes the raw material from which the container is made. The conversion of sheets into sealed tin containers was part of the manufacturing process incidental or ancillary to completing the final product under section 2(f). Credit was not denied merely because the resulting tin container was exempt as an intermediate product; Rule 57C did not apply, and Rule 57D preserved the credit despite exemption of the intermediate article.

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Issues: Whether tin sheets recognised as packaging material remained eligible for MODVAT credit after being converted into tin containers for packing vanaspati, and whether the exemption of the containers attracted Rule 57C or saved the claim under Rule 57D.

Analysis: Rule 57A treated packaging material as an eligible input. The expression was construed to cover the raw material from which a package or container is made, not merely a ready-to-use package. Since vanaspati had to be marketed in sealed containers, conversion of tin sheets into containers was part of the process incidental or ancillary to completing the manufactured product within the meaning of section 2(f). The existence of an exempt tin container did not defeat credit, because the container arose as an intermediate product in the course of manufacture of the final product. Rule 57C was therefore not attracted, while Rule 57D protected the credit notwithstanding exemption of the intermediate article.

Conclusion: The tin sheets were held to be eligible inputs for MODVAT credit, and the conversion into exempt tin containers did not bar credit on the final product.

Ratio Decidendi: Under Rule 57A, packaging material includes the raw material from which containers are manufactured for packing the final product, and where such conversion occurs as part of manufacture, credit is not denied merely because the resulting container is exempt as an intermediate product.

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