Modvat credit on glass bottles was allowed where pro-rata bottle cost formed part of aerated water costing.

Modvat credit on glass bottles used for aerated water was treated as admissible for the disputed prior period because the assessee showed that the pro-rata bottle cost had entered the costing of the final product. Rule 57A denied credit only where the input cost was not includible in the assessable value, and the later exclusion of crates and glass bottles by Notification No. 36/95 (N.T.) applied only from 17-11-1995. A Chartered Accountant's certificate covering the relevant year, with quantified depreciation, breakage, and repairs costs and pro-rata allocation, was accepted as sufficient proof of inclusion in pricing and profit computation.

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Issues: Whether Modvat credit on glass bottles used for aerated waters was admissible for the disputed period, particularly where the assessee produced a Chartered Accountant's certificate showing that the pro-rata cost of the bottles had been included in the costing of the final product.

Analysis: Rule 57A denied credit on inputs only when the cost of such input was not includible in the assessable value of the final product. Notification No. 36/95 (N.T.) expressly excluded crates and glass bottles used for aerated waters from Rule 57A with effect from 17-11-1995, but the periods in dispute were prior to that date. For the prior period, the decisive question was whether the bottle cost had formed part of the product costing. The Chartered Accountant's certificate covered the relevant financial year, identified expenditure on depreciation, breakages, and repairs and maintenance, quantified the total amount, and showed pro-rata allocation per crate. On that basis, the cost was treated as having entered the pricing and profit computation of the final product. The certificate was therefore not regarded as a blank or unsupported document.

Conclusion: Modvat credit on the glass bottles was admissible for the disputed period and the revenue's challenge failed.

Final Conclusion: The appeals were rejected because the assessee had established inclusion of the pro-rata bottle cost in the value formation of the aerated water, and the later amendment did not govern the earlier period.

Ratio Decidendi: Where the pro-rata cost of glass bottles used in aerated water is shown to have been included in the costing of the final product, Modvat credit is not barred under Rule 57A for the prior period.

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