Modvat credit for insulation material used in chlorine cell manufacture was upheld as functionally essential to production.

Rigid polyurethane foam section used as insulation in the chlorine cell house for caustic soda manufacture was treated as a component functionally required for production, since it helped reduce and maintain temperature and its use was undisputed. Applying the principle that insulation materials essential to manufacture can qualify for Modvat benefit, the item was held eligible for credit. The disallowance was therefore unsustainable.

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Issues: Whether Modvat credit was admissible on rigid polyurethane foam section used as an insulator in the cell house of the chlorine plant for manufacture of caustic soda.

Analysis: The item was accepted to be used as an insulator to reduce and maintain temperature in the chlorine cell, and there was no dispute about its use for that purpose. Materials used for insulation, where they are essential for the manufacture of the final product, have been recognised as eligible for Modvat benefit in earlier decisions. Applying that principle, the insulating item used in the chlorine cell was treated as a component functionally required for manufacture.

Conclusion: Modvat credit was admissible and the disallowance was not sustainable.

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