Modvat credit for water treatment chemicals upheld where inputs protected machinery and supported efficient plant operation.

Water treatment chemicals used to protect machinery, prevent corrosion, avoid malfunction, and keep the plant operating smoothly were treated as inputs eligible for Modvat credit under Rule 57A of the Central Excise Rules. Their use in circulating cooling water was held to fall within the wide expression of inputs used in or in relation to manufacture, directly or indirectly, even if not contained in the final product. The Revenue's reliance on a contrary precedent was rejected as factually distinguishable, and the grant of credit was upheld.

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Issues: Whether water treatment chemicals used for protecting machinery and ensuring smooth functioning of the plant are eligible as inputs for Modvat credit under Rule 57A of the Central Excise Rules.

Analysis: The items were found to be used for treating cooling water circulating through the plant so as to prevent corrosion, avoid malfunction, and ensure smooth and efficient functioning of the machinery and equipment. Such use was held to fall within the wide scope of inputs used in or in relation to manufacture, directly or indirectly, whether or not contained in the final product. The contrary precedent relied on by the Revenue was found distinguishable on its facts.

Conclusion: The chemicals were held to be eligible inputs and the Revenue's challenge to the grant of credit failed.

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