Modvat credit on packing containers allowed where tin plates were used for marketable vanaspati and Notification No. 214/86 did not bar it.

Modvat credit was admissible on tin plates and sheets used to make tin containers for packing vanaspati, because the packed product could not be marketed without such containers and the inputs were used in relation to manufacture. Notification No. 214/86 did not, by itself, bar credit under Rule 57C in this job-work chain, as the containers were treated as intermediate products arising in the course of manufacture and the larger bench ruling on similar facts was applied. The department's challenge to credit therefore failed, and the order allowing credit was maintained.

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Issues: (i) Whether Modvat credit was admissible on tin plates and sheets used for making tin containers sent to job workers and returned for packing vanaspati; (ii) Whether exemption under Notification No. 214/86 barred credit by application of Rule 57C.

Issue (i): Whether Modvat credit was admissible on tin plates and sheets used for making tin containers sent to job workers and returned for packing vanaspati.

Analysis: The packed vanaspati was the final commercial product sold by the assessee, and it was not disputed that it could not be marketed without such packing. The tin containers were therefore necessary to make the product marketable and were used in or in relation to manufacture of the finished product.

Conclusion: Modvat credit on the tin plates and sheets was admissible; this issue was decided in favour of the assessee.

Issue (ii): Whether exemption under Notification No. 214/86 barred credit by application of Rule 57C.

Analysis: Notification No. 214/86 was treated as standing on a different footing from ordinary exemptions for the purpose of Modvat in a job-work situation. The containers were also regarded as intermediate products arising in the course of manufacture of the packed finished product, and the earlier larger bench ruling on similar facts was applied.

Conclusion: Rule 57C did not bar the credit; this issue was decided in favour of the assessee.

Final Conclusion: The department's challenge to the availability of Modvat credit failed, and the order allowing credit was maintained.

Ratio Decidendi: Inputs used to make packing containers essential for marketing the finished product are treated as used in relation to manufacture, and exemption under Notification No. 214/86 does not, by itself, disqualify Modvat credit in such a job-work chain.

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