Modvat credit on protective tape used in manufacture was admissible because inputs used in relation to production qualify for credit.

Modvat credit on low tack protection tape used during manufacture to protect goods from damage and defects was admissible because an input qualifies if used in or in relation to manufacture, directly or indirectly, even if it is not an essential ingredient of the final product. The fact that the tape was removed before clearance did not defeat credit, and reliance on trade notices could not justify denial where the input was used in the manufacturing process and its value formed part of the assessable value of the final goods.

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Issues: Whether Modvat credit on low tack protection tape, used to protect goods during manufacture and removed before clearance, was admissible as an input used in or in relation to manufacture.

Analysis: The tape was declared as an input under the Modvat scheme and was used during the manufacturing process to protect the product from damage and defects. The governing principle is that credit is available where an item is used in relation to manufacture, whether directly or indirectly, and not merely when it is an essential ingredient of the final product. The reliance placed on trade notices did not justify denial of credit where the input was used in the course of manufacture and its value was taken into account in the assessable value of the final goods.

Conclusion: Modvat credit on the protection tape was admissible and the Revenue's challenge failed.

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