Modvat credit for machinery-cleaning chemicals upheld where the cleaning use was sufficiently connected to manufacture.

Duty-paid organic surface active agents used to clean machinery before production were treated as inputs used in or in relation to manufacture under Rule 57A of the Central Excise Rules, 1944. Although the chemicals were not consumed in the direct manufacture of frozen desserts, their use kept the machinery free from microbes and enabled production in compliance with food standards. Applying the same principle previously accepted for cleaning containers, the use was held sufficiently connected with manufacture and not too remote for exclusion from Modvat credit. The denial of credit was therefore unsustainable.

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Issues: Whether duty-paid organic surface active agents used for cleaning machinery employed in the manufacture of frozen desserts were eligible for Modvat credit as goods used in or in relation to the manufacture of the final product.

Analysis: Rule 57A of the Central Excise Rules, 1944 allowed credit on goods used in or in relation to the manufacture of the final product. The chemicals were not used in the direct manufacture of the frozen desserts, but were used to clean the machinery before production so that the machinery remained free from microbes and the final product could be manufactured in conformity with food standards. Goods used to clean containers had earlier been treated as inputs, and the same principle applied to cleaning materials used for machinery. The use was therefore sufficiently connected with manufacture and was not too remote to be excluded from the rule.

Conclusion: The goods were eligible for Modvat credit and the denial of credit was unsustainable.

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