Modvat credit on damaged tin containers remained admissible where wastage arose during packing and disposal rules were followed.

Modvat credit was admissible on tin containers damaged or wasted during the packing of finished goods because the containers were treated as inputs used to make the product marketable. The Department failed to show that the damage or wastage did not arise in the course of packing or manufacture, and Rule 57D protected credit where part of an input became waste, refuse or by-product during manufacture. Credit could not be denied on that basis, though the damaged or wasted material had to be disposed of in accordance with Rule 57F(4)(c) of the Central Excise Rules, 1944.

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Issues: Whether Modvat credit was admissible on tin containers damaged or wasted during the packing process of the finished product, and whether such credit could be denied on the ground that the damaged containers were not shown to have been wasted in the course of manufacture.

Analysis: The containers were treated as inputs because they rendered the finished product marketable. No evidence was brought by the Department to show that the wastage or damage to the containers did not occur during packing or the manufacturing process. Rule 57D protects credit where part of the input is contained in waste, refuse, or by-product arising during manufacture, and the damaged material was required to be dealt with under the prescribed disposal procedure. On that basis, the denial of credit was not justified.

Conclusion: Modvat credit on the damaged or wasted tin containers was admissible, subject to disposal of the damaged or wasted material in accordance with Rule 57F(4)(c) of the Central Excise Rules, 1944.

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