Modvat credit for mandatory markings on packing drums accepted as input used in relation to manufacture and clearance.

Paint used to mark wooden drums carrying telephone cables was treated as an input used in relation to manufacture and clearance of excisable goods, because the drums served as packing material and the markings were required by contract and by Rule 51 for wholesale packages leaving the factory. The fact that the paint was applied only for identification, and not to the final product, did not exclude it from Modvat eligibility. On that basis, the paint qualified for Modvat credit and the earlier denial was set aside, with credit directed to be restored.

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Issues: Whether paint used for marking wooden drums on which telephone cables were wound was an input used in relation to manufacture so as to qualify for Modvat credit.

Analysis: The paint was used to mark the wooden drums on which the cables were despatched. The drums functioned as packing material, and the markings were necessary both under the contract requirements and under Rule 51 of the Central Excise Rules, which requires wholesale packages cleared from the factory to bear specified particulars and identification markings. Since the cables could not be removed from the factory without such marking, the use of paint was treated as part of the process up to the stage of clearance from the factory. The objection that the paint was used only for marking and not for painting the final product was rejected.

Conclusion: The paint qualified as an input connected with the manufacture and clearance of the goods, and Modvat credit was admissible to the assessee.

Final Conclusion: The denial of Modvat credit was set aside and the credit was directed to be restored.

Ratio Decidendi: Materials used for mandatory marking of packing containers or drums through which excisable goods are cleared from the factory are used in relation to manufacture and clearance, and therefore may qualify for Modvat credit.

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