Modvat credit for machinery lubricants upheld where lubricating oil and grease have direct functional nexus with manufacture.

Lubricating oil and grease used on machinery were treated as inputs for Modvat credit under Rule 57A because items applied in the manufacturing process can qualify when they have a direct functional nexus with manufacture, even if they are not ingredients of the final product. Grease was regarded as performing the same function as lubricating oil by reducing friction and maintaining production quality. A solitary contrary order was not treated as sufficient to depart from the settled view, and the denial of Modvat credit was set aside in favour of the assessee.

---

---

Issues: Whether lubricating oil and grease used on machinery qualify as inputs for Modvat credit under Rule 57A.

Analysis: The availability of Modvat credit on lubricating oils had already been addressed in prior decisions holding that items used in relation to manufacture, though not directly consumed as ingredients of the final product, may still qualify as inputs where they perform a necessary function in the manufacturing process. The role of grease was treated as identical to that of lubricating oil, since both are applied to machinery to reduce friction and maintain the quality of production. In these circumstances, the solitary contrary order was not treated as a reason to depart from the settled view relied upon.

Conclusion: Lubricating oil and grease qualified as inputs under Rule 57A, and the denial of Modvat credit was set aside in favour of the assessee.

Ratio Decidendi: Goods used on machinery in the manufacturing process are eligible as inputs for Modvat credit where they bear a direct functional nexus with manufacture, even if they are not ingredients of the final product.

---