2007 (10) TMI 213 - AT - Central Excise

Whether credit on polythene bags used for dispensing the materials necessary for undertaking batch-wise production in the factory can be allowed & whether they can be considered as inputs used in or in relation to manufacture of final products as per the erstwhile Rule 57-A -- scope of the term inputs is very wide as interpreted by various judicial fora - polythene bags have indeed been used in mfg. of final product, though they may not directly form parts of products itself credit allowed

Summary

Issues Involved:
Whether Modvat/Cenvat credit on polythene bags used for batch-wise production can be allowed as inputs under Rule 57-A of the Central Excise Rules, 1944.

Analysis:
The appeal involved both the revenue and the party challenging the Order-in-Appeal 212/05-C.E. dated 26-12-2005. The main issue was the eligibility of Modvat/Cenvat credit on polythene bags used for dispensing materials in batch-wise production. The Commissioner (Appeals) disallowed the credit but set aside the demand of interest and penalty, leading to the revenue's appeal on these aspects.

Legal Arguments:
The party's advocate argued that the expression 'used in or in relation to manufacture of final products' covers the entire manufacturing process, including items assisting in production. Referring to case laws like CCE v. Solaris Chemtech Ltd., it was contended that the term 'inputs' under Rule 57A has a broad interpretation. Various judicial decisions were cited to support the view that items not directly part of the final product but used in manufacturing activities qualify as inputs.

Judgment:
After considering the arguments, the Tribunal found that polythene bags were indeed used in relation to manufacturing the final product, falling within the wide definition of 'inputs.' Consequently, the Modvat credit was allowed, and the party's appeal was upheld. As a result, there was no basis for imposing penalties or demanding interest. Thus, the revenue's appeal was dismissed.

This detailed analysis of the judgment highlights the key legal issues, arguments presented, and the final decision reached by the Appellate Tribunal CESTAT, Bangalore regarding the eligibility of Modvat/Cenvat credit on polythene bags in the context of batch-wise production.