Modvat credit for inputs used in salt pans upheld where salt formed an intermediate product in manufacture of caustic soda.

Modvat credit was held admissible on LDPE films/liners used in salt pans to produce salt that was then used as an intermediate input for caustic soda. The applicable principle under Rule 57A was that an input need not be consumed only within the factory premises to qualify for credit, so long as it is used in the manufacturing chain of the final product. Salt was treated on these facts as a manufactured product, and denial of credit merely because the liners were used in salt pans outside the main premises was unsustainable. The credit claim was therefore allowed and the denial set aside.

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Issues: Whether Modvat credit was admissible on LDPE films/liners used in salt pans for producing salt, which was further used as raw material in the manufacture of caustic soda, and whether use of the input outside the manufacturing premises defeated the credit claim.

Analysis: The appeal turned on the scope of Modvat credit under Rule 57A of the Central Excise Rules, 1944. The governing principle, as applied, is that an input need not be consumed only within the factory premises to qualify for credit, and use in the manufacture of an intermediate product that is subsequently used in the manufacture of the final product remains within the permissible ambit of Modvat. Salt was treated as a manufactured product in the facts of the case, since it was produced by pumping sea water and saline water into salt pans and allowing solar evaporation to crystallise salt, which was thereafter used in the production of caustic soda. On that basis, the denial of credit merely because the LDPE films were used in salt pans and not inside the main manufacturing premises was found unsustainable.

Conclusion: Modvat credit on the LDPE films/liners was admissible, and the denial of credit was set aside in favour of the assessee.

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