Indirect use in manufacture can satisfy Rule 56A credit where inputs are ultimately employed in the final excisable product.

Materials indirectly used in a manufacturing chain may qualify for credit under Rule 56A where they are ultimately employed in producing the final excisable product, even if they do not themselves form part of that product. On that approach, platinum and rhodium gauzes used in the intermediate manufacture of nitric acid, later converted into inputs for explosives, were treated as eligible materials used in the manufacture of explosives. The cited notifications and prior appellate decisions were read consistently with this broader functional test, so credit was allowed and the objection to availment of the procedure was rejected.

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Issues: Whether platinum and rhodium gauzes used in the intermediate manufacture of nitric acid, which was further converted into nitroglycerine and ammonium nitrate for use in explosives, qualified as materials used in the manufacture of explosives so as to entitle the assessee to credit under Rule 56A.

Analysis: The gauzes were not the final ingredient of explosives, but the record showed that they were used in the process of producing nitric acid, which was then converted into substances that formed essential components of explosives. The requirement under Rule 56A was treated as satisfied where the material, though subjected to chemical conversion or indirect use, was ultimately employed in the manufacture of the finished product. The cited notifications and prior appellate decisions were consistent with this approach and supported allowance of credit even where the input did not itself become a component part of the final product.

Conclusion: The gauzes were held to be used in the manufacture of explosives, and the assessee was entitled to credit under Rule 56A. The objection to availment of the procedure and credit was rejected, and the assessee succeeded.

Ratio Decidendi: Materials indirectly used in the manufacturing chain are eligible for credit under Rule 56A if they are ultimately employed in the manufacture of the final excisable product, even though they do not themselves form part of that product.

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