Modvat credit on duty-paid inputs exported under bond cannot be denied merely because the process was not manufacture.

Modvat credit on duty-paid inputs remained admissible where the inputs were welded with flanges in the factory and the resulting goods were exported under bond. The analysis applied Rule 57F read with Rule 57A of the Central Excise Rules, 1944 and the Board's clarification that clearance of inputs as such for export under bond is to be treated at par with final products for credit utilisation. Following the Tribunal's view in Rico Auto Industries, credit could not be denied merely because the process undertaken did not amount to manufacture, so long as the goods were exported under bond and the credit was otherwise admissible.

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Issues: Whether Modvat credit could be denied on duty-paid inputs which were welded with flanges and exported under bond, on the ground that the process did not amount to manufacture.

Analysis: The inputs were received duty paid, subjected to welding with flanges in the factory, and the resulting goods were exported under bond. The reasoning turned on Rule 57F of the Central Excise Rules, 1944 read with Rule 57A, and on the Board's clarification that clearance of inputs as such for export under bond is to be treated at par with final products for the purpose of utilisation of credit. The earlier Tribunal view in Rico Auto Industries was followed to hold that credit cannot be denied merely because the process undertaken may not amount to manufacture, where the goods are exported under bond and the credit is otherwise admissible under the Modvat scheme.

Conclusion: Modvat credit was held admissible and the denial of credit was unsustainable.

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