Modvat input eligibility for cooling-system chemicals and refrigerant gases recognised where they directly support manufacture.

Refrigerant gases and water treatment chemicals used in the plant's cooling and recirculating systems were treated as eligible Modvat inputs because they had a direct functional nexus with manufacture and were used in relation to the manufacturing process, even though they did not form part of the finished goods. Prior decisions on refrigerant gas in cooling water systems and anti-scaling chemicals in heat exchangers were applied, and denial of Modvat credit was held unjustified.

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Issues: Whether refrigerant gases and water treatment chemicals used in the manufacturing plant were eligible inputs for Modvat credit.

Analysis: The goods were used for cooling water, recirculating the cooling system, and treating water employed in the plant for manufacture of finished products. The controlling test applied was whether the goods had a direct functional nexus with the manufacturing process and were used in relation to manufacture, even if they did not form part of the finished products. Prior decisions on refrigerant gas used in cooling water systems and chemicals used to prevent scaling in heat exchangers were treated as applicable.

Conclusion: The refrigerant gases and water treatment chemicals qualified as inputs and the denial of Modvat credit was not justified.

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