Modvat credit extends to duty-paid explosives used outside the factory when they produce intermediate goods for final manufacture.

Duty-paid explosives used in mining limestone, which was then consumed as an intermediate product in cement manufacture, were treated as eligible inputs for Modvat credit. Rule 57A was read broadly to cover goods used in or in relation to manufacture, and its explanation enlarged the scope of "inputs" beyond items physically brought into the factory. Rule 57F did not narrow that wider entitlement, and Rule 57J specifically supported credit where inputs are used to produce an intermediate product later used in the final product. Credit could not be denied merely because the explosives were consumed outside the factory premises.

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Issues: Whether explosives used in mining limestone, which is then used as an intermediate product in the manufacture of cement, qualify as inputs for Modvat credit even though the explosives are not brought into the factory premises.

Analysis: Rule 57A allows credit on duty paid on goods used in or in relation to the manufacture of the final products, and its explanation enlarges the meaning of "inputs" rather than restricting it to goods physically brought into the factory. Rule 57F was relied upon to contend that inputs must be used within the factory, but that provision does not control the wider language of Rule 57A. Rule 57J, operating notwithstanding the other rules, specifically covers inputs used in the manufacture of intermediate products that are thereafter used in the manufacture of final products. On the facts, explosives were used to extract limestone, limestone was used in the manufacture of cement, and duty had been paid on the explosives.

Conclusion: The explosives were eligible as inputs for Modvat credit and the credit could not be denied merely because they were used outside the factory in the mining operation.

Ratio Decidendi: Where duty-paid inputs are used in relation to the manufacture of an intermediate product that is itself used in the manufacture of the final product, Modvat credit is allowable even if the inputs are consumed outside the factory premises.

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