Modvat credit on inputs and packing materials recognised where items fell outside Rule 57A exclusions and duty valuation included packing cost.

Modvat credit was treated as admissible on oxygen gas, D.A. gas, refractory bricks, cement and synthetic cloth because they did not fall within the exclusion for machines, machinery, apparatus, equipment or tools under Rule 57A. Packing materials such as hessian bags, labels, gum tape and ink were also regarded as eligible inputs where their cost had been included in the assessable value for Central Excise duty; exclusion merely because the cost was not included for cess purposes was not accepted. The distinction between cess and Central Excise duty was recognised, with factual verification left only on the packing-material position for the relevant period.

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Issues: Whether Modvat credit was admissible on oxygen gas, D.A. gas, refractory bricks, cement, synthetic cloth and packing materials such as hessian bags, labels, gum tape and ink, and whether denial of credit on the ground that packing cost was not included for cess purposes was justified.

Analysis: Oxygen gas, D.A. gas, refractory bricks, cement and synthetic cloth were held to be outside the exclusionary expression in the explanation to Rule 57A of the Central Excise Rules, 1944, as they were not machines, machinery, apparatus, equipment or tools. Packing materials were also treated as eligible inputs because their cost had been included in the assessable value for Central Excise duty purposes, and the mere fact that such cost was not included for cess purposes did not defeat the claim. The Tribunal accepted the distinction between cess and Central Excise duty and limited the objection to the absence of ad valorem duty only by way of verification of the factual position for the relevant period.

Conclusion: Modvat credit was held admissible on the disputed items, subject to verification regarding packing materials, and the disallowance was not sustained except for coal and steam, which were not pressed.

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