Modvat credit on packing materials allowed where bottle and crate costs formed part of assessable value under Rule 57A.

Modvat credit was admissible on glass bottles and plastic crates used for aerated waters because the decisive test under Rule 57A was whether the packing cost was actually included in the assessable value of the final product. The exclusion in the Explanation applied only where such cost was not included, or had not been included in the preceding financial year, and it could not be narrowed by importing Section 4 concepts about durable and returnable packing. Durable or returnable packing could be included on a pro rata basis for repeated use, and that inclusion remained consistent with the Modvat scheme's anti-cascading purpose.

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Issues: Whether Modvat credit was admissible on glass bottles and plastic crates used for aerated waters where the cost of such packing materials was included on a pro rata basis in the assessable value of the final product, and whether Rule 57A excluded such packing merely because Section 4 treated durable and returnable packing differently.

Analysis: The relevant exclusion in Clause (iii) of the Explanation to Rule 57A covered only those packaging materials whose cost was not included, or had not been included during the preceding financial year, in the assessable value of the final product. The text of the rule could not be altered by reading into it words that would make it depend upon whether the cost was legally liable to be included under Section 4. The Modvat scheme was optional and intended to avoid cascading duty, so the decisive question was whether the cost of the packing formed part of the price on which duty was paid. The Board's circular correctly supported that approach. For durable and returnable packing, the cost could be taken on a pro rata basis according to repeated use, and such inclusion was not inconsistent with the scheme. The same reasoning applied to plastic crates, which were treated as containers and packaging materials for bottles of aerated waters.

Conclusion: Modvat credit on glass bottles and plastic crates was admissible, and the disallowance made by the lower authorities could not be sustained.

Final Conclusion: The dispute was resolved in favour of the assessee on the admissibility of credit for both glass bottles and plastic crates, while the Revenue's challenge failed.

Ratio Decidendi: Under Rule 57A, packaging materials qualify for Modvat credit when their cost is actually included in the assessable value of the final product, and durable or returnable packing may be included on a pro rata basis according to repeated use.

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