'Don't pay duty under MODVAT for damaged bags'

NEW DELHI: Tax tribunal CESTAT has held that industries do not have to pay duty under MODVAT for high -density polyethylene ( HDPE) and paper bags that get damaged during the course of packing.

The Customs Excise and Service Tax Appellate Tribunal (CESTAT) said that as damaged HDPE and paper bags are scrap in nature, the excise official cannot direct that duty must be paid on it under MODVAT.

The tribunal's decision came over a petition filed by Madras Cements, a leading player in the southern market, which challenged a demand for duty by excise officials over damaged HDPE and paper bags.

"I find that the demand is not sustainable and the damaged bags have been rightly treated by the assesses (Madras Cement) as waste and scrap, not required to payment of duty," said the Chennai bench of CESTAT.

Under the Modified Value Added Tax (MODVAT), credit is allowed for duty paid on 'specified inputs' and 'specified capital goods' used in the manufacture of finished goods. The credit can be utilised for payment of duty on finished goods.



According to Rule 57D of the Modvat credit Rules, credit will not be denied or varied just because some raw materials or other inputs, with respect to which excise has been paid, become waste or scrap in the course of the manufacturing process.