Modvat credit for manufacturing inputs extends to materials used in ancillary production activities, even without direct product incorporation.

Polythene sheets used to cover pugs and prevent moisture loss were held to qualify as inputs for Modvat credit under Rule 57A. The Tribunal applied the principle that "input" includes goods used in any activity concerned with or pertaining to manufacture, even where they do not enter the final product directly or indirectly. On that basis, the denial of credit was unsustainable, and the assessee was entitled to Modvat credit on the disputed material.

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Issues: Whether polythene sheets used to cover pugs for preventing loss of moisture were eligible inputs for Modvat credit under Rule 57A.

Analysis: Rule 57A allowed credit for goods used in or in relation to the manufacture of the final product, whether directly or indirectly and whether or not contained in the final product. The polythene sheets were used to prevent moisture loss in the pugs, and the Tribunal applied the settled principle that the expression "input" covers goods used in any activity concerned with or pertaining to manufacture, even if they do not enter the finished product directly or indirectly.

Conclusion: The polythene sheets were eligible inputs and the denial of Modvat credit was unsustainable.

Final Conclusion: The assessee was entitled to Modvat credit on the disputed material, and the order disallowing credit was set aside.

Ratio Decidendi: Goods used in an activity concerned with or pertaining to manufacture fall within the scope of inputs under Rule 57A, even if they do not enter the final product directly or indirectly.

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