Packaging material used for marketing can qualify as an intermediate product for Modvat credit under Rule 57D.

Packaging material manufactured from duty-paid L.D.P.E. granules and used to pack finished goods for marketing can qualify as input used in or in relation to manufacture under Rule 57D. The bags were not excluded merely because they served a packaging function, and it was not necessary that an intermediate product arise only as part of the direct manufacturing process of the final product. Applying the cited precedent, the packaging bags could be treated as intermediate products for Modvat purposes, and credit on the duty paid on the granules was admissible.

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Issues: Whether Modvat credit was admissible on duty paid on L.D.P.E. granules used in the manufacture of bags for packing the finished goods, and whether such bags could be treated as intermediate products within Rule 57D.

Analysis: The bags manufactured from L.D.P.E. granules were not to be excluded merely because they were used as packaging material. For the purpose of Rule 57D, it was not necessary that an intermediate product should come into existence as part of the direct manufacturing process of the final product. Packaging material used for marketing the finished goods can also qualify as inputs used in or in relation to manufacture, and the ratio of the cited precedent supported treatment of such bags as intermediate products.

Conclusion: The credit on duty paid on the granules was admissible, and the assessee was entitled to Modvat credit.

Ratio Decidendi: Packaging material manufactured from duty-paid inputs and used for packing the final product before marketing can be treated as an intermediate product or input used in relation to manufacture for the purpose of Modvat credit under Rule 57D.

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