Modvat credit for lubricating oil used in machinery was upheld as an input essential to manufacturing.

Lubricating oil used to lubricate a generator was treated as an input integrally connected with the manufacturing process and therefore eligible for Modvat credit under Rule 57A of the Central Excise Rules, 1944. The note relies on Larger Bench decisions that lubricating oil and greases used for machines and machinery employed in manufacture are essential for their working and qualify as inputs. On that reasoning, denial of Modvat credit on such lubricating oil was unsustainable.

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Issues: Whether Modvat credit was admissible on lubricating oil used for lubricating a generator under Rule 57A of the Central Excise Rules, 1944.

Analysis: The oil was found to be lubricating oil used for the purpose of lubricating the generator. The matter was covered by Larger Bench decisions holding that lubricating oil and greases used for lubricating machines and machinery employed in manufacture are essential for their working and are integrally connected with the manufacturing process, and therefore qualify as inputs for Modvat credit.

Conclusion: Modvat credit was admissible on the lubricating oil, and the denial of credit was unsustainable.

Ratio Decidendi: Lubricating oil used for the functioning of machinery employed in manufacture is an input integrally connected with the manufacturing process and is eligible for Modvat credit under Rule 57A of the Central Excise Rules, 1944.

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