Modvat credit on packing materials allowed where packing cost formed part of assessable value; separate inadmissible credit sustained.

Rule 57A was read to allow Modvat credit on packing materials where their cost formed part of the assessable value of the final product. Glass bottles and plastic crates used for aerated water were therefore eligible, and reusable or durable packing could be valued on a pro rata basis rather than excluded merely because it was returnable. The earlier view treating such packing as creditable was followed. The separate credit of Rs. 60,309.72 was, however, found to have been wrongly taken and its disallowance was sustained.

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Issues: (i) Whether Modvat credit was admissible on glass bottles and plastic crates used as packing material for aerated water where the cost of such packing was included in the assessable value, including on an instalment or pro rata basis. (ii) Whether the separate credit amount of Rs. 60,309.72 was wrongly taken and therefore inadmissible.

Issue (i): Whether Modvat credit was admissible on glass bottles and plastic crates used as packing material for aerated water where the cost of such packing was included in the assessable value, including on an instalment or pro rata basis.

Analysis: Rule 57A was read as excluding only such packing materials whose cost was not included in the assessable value of the final product. Section 4(4)(d)(i) was treated as governing valuation and not as imposing an absolute bar on Modvat credit. Durable and returnable packing could be valued on a single-use or pro rata basis, and if the packing cost formed part of the assessable value, credit could not be denied merely because the packing was reusable. The earlier Tribunal view treating crates and bottles as eligible packing material was followed.

Conclusion: Modvat credit was admissible on glass bottles and plastic crates where their cost formed part of the assessable value, and this issue was decided in favour of the assessee.

Issue (ii): Whether the separate credit amount of Rs. 60,309.72 was wrongly taken and therefore inadmissible.

Analysis: The amount was found to have been added a second time in the impugned order. However, the credit had been taken on the strength of the original invoice, and no legal infirmity was found in the finding that the amount was not admissible to the assessee.

Conclusion: The disallowance of Modvat credit of Rs. 60,309.72 was upheld and this issue was decided against the assessee.

Final Conclusion: The appeals were substantially allowed on the main question of Modvat credit on packing materials, but the specific disallowance of Rs. 60,309.72 was sustained.

Ratio Decidendi: For Modvat purposes, packing material is eligible where its cost is included in the assessable value of the final product, and reusable or durable packing may be considered on a pro rata basis for valuation.

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