2005 (1) TMI 277 - AT - Central Excise

Summary

Issues:
Availability of Modvat credit on duty paid on HDPE bags for M/s. Grasim Industries Ltd.

Analysis:
The main issue in the three appeals filed by the Revenue was whether Modvat credit of the duty paid on HDPE bags is available to M/s. Grasim Industries Ltd. The Revenue contended that the HDPE bags were not used in or in relation to the manufacture of the final products, as they were used for transporting raw-material from the manufacturer's premises to the premises of the respondents. The Adjudicating Authority disallowed the Modvat credit, but the Commissioner (Appeals) allowed it, stating that the bags are used in relation to manufacture and that the cost of packing material was included in the value of the final product.

On one side, the learned Advocate for M/s. Grasim Industries argued that salt is necessary for manufacturing caustic soda, and when salt is cleared by rail to the respondents, the salt manufacturer uses the bags for packing salt. He referred to Rule 57F(4) of the Central Excise Rules, stating that HDPE bags are inputs for Caustic Soda Lye. The Advocate also cited a previous Tribunal decision allowing Modvat credit on HDPE bags in their own case.

The Tribunal considered both sides' submissions and analyzed the relevant rules. It was observed that the HDPE bags were used for packing salt, a raw-material that was not subject to Central Excise duty. As the bags were not used in or in relation to the manufacture of the final product, Caustic Soda Lye, the Modvat credit was not available to the respondents. The Tribunal distinguished the facts from the case of Ashwin Vanaspati Industries, where a different scenario was presented regarding the use of packing material.

Ultimately, the Tribunal held that the Modvat credit of duty paid on HDPE bags was not available to the respondents. However, no penalty was imposed as the issue was related to the interpretation of rules. The appeals were disposed of accordingly.

This judgment clarifies the eligibility criteria for claiming Modvat credit on duty paid on packing material and emphasizes the requirement for such material to be used directly in the manufacture of the final product to avail of the credit.