1996 (6) TMI 203 - AT - Central Excise

Summary

Issues:
Admissibility of Modvat credit on plastic granules used in the manufacture of plastic bags for packing nylon filament yarn and polyester filament yarn.

Analysis:
The appeals revolved around the admissibility of Modvat credit on plastic granules utilized in producing plastic bags for packaging nylon filament yarn and polyester filament yarn. The Deputy Commissioner disallowed the Modvat credit, asserting that the yarn was dutiable at specific rates, excluding the cost of LDPE granules from the assessable value of the final product. The Commissioner (Appeals) disagreed with this reasoning, referencing the Ponds India case where packaging material was deemed essential for the final product. However, the Commissioner still denied Modvat credit based on different grounds, stating that the polyethylene bags were not crucial for marketing the yarn.

The appellants argued that the Commissioner's decision exceeded the scope of the show cause notice, which focused on Modvat credit for packing material, not raw material for packaging. They contended that polyethylene bag packing was essential for the yarn and cited precedents where similar packaging materials were considered eligible for Modvat credit. The Tribunal's decision in the Shree Cement case and the Madras High Court's ruling in India Cement's case supported the eligibility of packaging materials for Modvat credit.

Upon careful consideration, the Tribunal found the Deputy Commissioner's reasoning unsustainable. Citing the Ashwin Vanaspati case and the Ponds India judgment, the Tribunal emphasized that the packaging of yarn in plastic bags was integral to the manufacturing process. The Tribunal highlighted that the packing of yarn in plastic bags and corrugated cartons was ancillary to the yarn's production, making the Modvat credit valid. Consequently, the impugned order was set aside, and the appeals were allowed.