Input credit on kraft paper allowed despite exempt intermediate cartons used as packing material in manufacture.

Credit of duty paid on kraft paper was allowable where the inputs were sent to a job worker for conversion into cartons used as packing material for the final product. Rule 57D permitted such credit, and the exempt status of the intermediate cartons did not defeat entitlement. The cartons were treated as an intermediate product in the manufacturing chain, so exemption at that stage did not affect the input credit on kraft paper.

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Issues: Whether credit of duty paid on kraft paper could be taken when the inputs were sent to a job worker for conversion into cartons used as packing material for the final product, and whether exemption of the intermediate cartons from duty affected such credit.

Analysis: The credit was claimed on inputs sent to a job worker for making cartons which were returned for packing the manufactured yarn. The governing principle applied was that credit on inputs is allowable even when the intermediate product is exempt from duty. Rule 57D permitted such credit, and the exemption status of the cartons did not alter the entitlement. The reasoning followed the earlier view that the cartons were only an intermediate product in the manufacturing chain.

Conclusion: The respondent was entitled to take credit of the duty paid on the kraft paper, and the appeal failed.

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