Modvat credit for plastic droppers was allowed where the dropper formed part of the marketable pack and final product value.

Plastic droppers supplied with pediatric drops were treated as part of the final marketed product for Modvat credit because they were packed with the sealed bottle, formed part of the marketable pack at the factory gate, and their value was included in the assessable value and retail price. Although the dropper was not used in the physical manufacture of the medicine, the phrase "in relation to" was read broadly to cover items that facilitate marketability. Duty paid on the dropper was therefore eligible for credit as a component of the final product.

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Issues: Whether plastic droppers supplied along with pediatric drops and included in the retail price could be treated as an input used in or in relation to the manufacture of the final product for the purpose of Modvat credit.

Analysis: The Tribunal held that the dropper was not used in the physical manufacture of the medicine, but its role did not end there. Since the dropper was packed along with the sealed bottle, formed part of the marketable pack at the factory gate, and its value was included in the assessable value and retail price, it contributed to value addition in the final product. The expression "in relation to" was read broadly to cover items that facilitate the marketed form of the product. The Tribunal also relied on the principle that what is necessary to render goods marketable may be treated as part of the component structure of the final product.

Conclusion: The dropper qualified as a component of the final product for Modvat purposes, and duty paid on it was eligible for credit.

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