Modvat credit allowed for lubricating oil essential to commissioning and operation of machinery, with cost included in assessable value.

Lubricating oil supplied with machinery in separate drums was held eligible for Modvat credit because it was essential for immediate commissioning and smooth operation of the final product, and its value formed part of the assessable value on which duty was paid. The separate delivery was treated as a matter of convenience, not as a reason to deny credit. The Tribunal applied the broad scope of the Modvat scheme and the principle that credit is available where the input is necessary for the functioning of the final product and its cost is included in its value. Credit was therefore allowed in favour of the assessee.

---

---

Issues: Whether lubricating oil supplied with the machinery in separate drums and included in the sale price was eligible for Modvat credit as an input used in or in relation to manufacture.

Analysis: The lubricating oil was supplied with the machines for their immediate commissioning and smooth operation, and its value formed part of the assessable value of the final product on which duty was paid. The fact that the oil was delivered separately was treated as a matter of convenience and not as a reason to deny credit. The Tribunal also relied on the broad language of the Modvat scheme, the Board circular treating transformer oil as a vital input, and the principle that credit is available where the input is essential for the functioning of the final product and its cost is included in the value of the product.

Conclusion: The lubricating oil was held to be an eligible input for Modvat credit, in favour of the assessee.

Ratio Decidendi: An input that is essential for the functioning and commissioning of the final product, and whose value is included in the assessable value of that product, is eligible for Modvat credit even if supplied separately along with the final product.

---