Modvat credit on inputs used to make sand moulds was upheld as linked to manufacture of the final product.

Modvat credit was held admissible on chemicals and carbon-di-oxide gas used to make sand moulds, where those moulds were themselves used in manufacturing cast iron spun pipes. A prior Larger Bench ruling had already treated chemicals and resin used in making sand moulds for castings as eligible inputs because they were used in relation to manufacture of the final product. The first appellate authority was bound to follow that view and could not rely on earlier contrary decisions or create a factual distinction without showing the Larger Bench ruling was inapplicable. Credit was therefore allowed and the adverse order set aside.

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Issues: Whether credit was admissible on chemicals and carbon-di-oxide gas used in the manufacture of sand moulds, which were in turn used in the manufacture of cast iron spun pipes.

Analysis: The issue was covered by an earlier Larger Bench decision holding that chemicals and resin used in making sand moulds for manufacture of castings were eligible inputs for Modvat credit because they were used in relation to the manufacture of the final product. The first appellate authority was required to follow that binding Larger Bench view and could not disregard it by relying on earlier contrary decisions or by drawing an artificial distinction without showing how the Larger Bench ruling was distinguishable on facts.

Conclusion: Credit was admissible, and the impugned order was set aside in favour of the assessee.

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