Input used in relation to manufacture where liquid nitrogen tested silica grades and enabled Modvat credit.

Liquid nitrogen used at the precipitation and drying stages to test and control the BET surface area of spray dried silica was treated as an input used in relation to manufacture because the testing determined the correct grade and customer specification of the final product. As the activity was essential to classification into different grades and to ensure the product met the required end use, it was not regarded as a post-manufacture process detached from production. Modvat credit was therefore available on the input.

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Issues: Whether liquid nitrogen used for testing and determining the correct grade and surface area of spray dried silica was an input used in or in relation to the manufacture of the final product so as to qualify for Modvat credit.

Analysis: The liquid nitrogen was used at the precipitation stage and again at the drying stage to test and control the BET surface area of silica, which determined the correct grade of the final product according to customer specifications. The testing was found to be essential for classification of silica into different grades and for ensuring that the product met the required end use. On this basis, the item was held to be used in relation to manufacture and not as a post-manufacture activity detached from the manufacturing process.

Conclusion: Liquid nitrogen was held to be an input used in relation to the manufacture of the final product, and the assessee was entitled to Modvat credit.

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