Modvat credit on denaturing input allowed where Crotonaldehyde had a sufficient nexus with manufacture through denatured alcohol.

Modvat credit was held admissible on Crotonaldehyde used to denature Ethyl Alcohol where the denatured alcohol was itself used in the manufacture of final products. The item was treated as an input used in relation to manufacture because direct consumption in the final product is not required if the input has a sufficient nexus with the manufacturing process. The disallowance was set aside.

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Issues: Whether Modvat credit was admissible on Crotonaldehyde used to denature Ethyl Alcohol, where the denatured alcohol was used as an input in the manufacture of the final products.

Analysis: Crotonaldehyde was found to be used for denaturing Ethyl Alcohol, and the denatured alcohol was in turn used in the manufacture of the final products. On that basis, the item was treated as an input used in relation to manufacture. The reasoning followed the settled principle that an input need not be directly consumed in the final product if it has a sufficient nexus with the manufacturing process.

Conclusion: Modvat credit was admissible on Crotonaldehyde and the disallowance was set aside.

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