Modvat on raw materials used in the manufacture of packaging materials - Central Excise - 10/90-CX.8

Modvat on raw materials used in the manufacture of packaging materials Circular No. 10/90-CX.8 Dated 13-2-1990 [From F. No. 263/20/89-CX.8] Government of India Central Board of Excise Customs New Delhi Subject : Admissibility of Modvat credit on raw materials used in the manufacture of packaging materials - Clarification regarding. Attention is invited to Boards instructions F. No. 267/129/87-CX.8, dated 3-3-1988 and F. No. 267/90/88-CX.8, dated 6-9-1988 (Circular No. 45/88 ) under which availability of Modvat credit on raw material used in manufacture of packaging materials has been clarified. 2. Different views have been expressed by CCE and Trade about availability of Modvat credit of duty paid on raw materials used in the manufacture of ready to use packaging Materials (in which finished dutiable products are packed). 3. The matter has been examined by the Board. It is observed that Rule 37A allows Modvat credit for "Packaging materials" and not on raw materials for making such packaging materials. Packaging materials are ready to use articles such as containers, boxes, cartons, bottles etc. Therefore Modvat credit will be admissible for the duty paid on such ready to use packaging materials but not on the raw materials (such as plastic granules, steel sheets/strips etc.) used for making packaging materials. Raw materials like plastic granules or steel sheets/strips are general purpose articles which can be put to various uses, one of which is making of packaging materials. These raw materials by themselves are not recognisable as packaging materials. 4. Board has further observed that this controversy has cropped up only with respect to packaging materials like plastic containers and cardboard cartons (which are fully exempt), either because of the fact that they are manufactured in the small scale sector or are specifically exempted under some exemption notification. Since the user of such duty free packaging materials are unable to get the Modvat credit in respect of the exempt ready to use packing articles themselves, they are wanting to have the Modvat credit for duty paid on raw materials for making such packaging materials by bringing such raw materials into their factory, taking credit of the duty paid on such raw materials, there after sending these credit paid raw materials to job workers under Rule 57F(2) for converting them into ready to use packaging articles and bringing such packaging materials back into their factory. This demand of the assessees is not admissible as Rule 57A does not allow Modvat credit in respect of raw materials for packaging materials. 5. It has been further observed by the Board that where the raw materials are converted into dutiable ready to use packaging articles, Modvat credit in respect of the raw materials duty will be admissible because here the packaging materials can be considered as final products in their own right. Such conversion can be either in the same factory where these ready to use packaging materials are consumed in the process of packaging other finished goods or it can be in another independent factory. In the former case, credit of duty paid in respect of raw materials can be utilised for payment of duty on the ready to use packaging materials and the credit of duty paid on such ready to use packaging materials can, in turn, be utilised for payment of duty on duty on the final products of the integrated manufacturers. 6. After considering ail aspects, Board with a view to avoid the scriptory work of , doing plus-minus exercise twice in the integrated unit, has decided to allow the integrated units to straightaway take the Modvat credit for the duty paid on raw materials for dutiable packaging materials and use such credit towards payment of duty on the final products of the unit. This is only a procedural simplification and does not detract from the basic provision under Rule 57A that Modvat credit was allowable only for packaging materials and not in respect of raw materials for making such materials. Therefore Board's instructions dated 3-3-88 referred above do not require any change. Board's letter dated 6-9-88 referred above can be treated as modified to the above extent. 7. Trade and field formations may be informed accordingly. 8. Receipt of this letter may please be acknowledged.