Input credit for water-treatment chemicals used in power generation was upheld as integral to cement manufacture.

Caustic soda and bleaching powder used to treat water for steam generation in a cement powerhouse were treated as inputs used in or in relation to manufacture under Modvat Rule 57A. Applying the user test and relying on an earlier Division Bench ruling, the Court accepted that water treatment was integral to the manufacturing process because the electricity generated from the treated water was necessary for cement production and manufacture could not proceed without such inputs. The chemicals were therefore regarded as eligible inputs, and Modvat credit was available.

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Issues: Whether caustic soda and bleaching powder used for treatment of water, which was in turn used for generation of steam in the powerhouse for generation of electricity, were used in or in relation to the manufacture of cement so as to qualify for Modvat credit under Rule 57A of the Central Excise Rules, 1944.

Analysis: The issue was covered by an earlier Division Bench decision of the same Court. Applying the user test, the Court accepted that the chemicals used for water treatment formed part of the manufacturing process of cement, because electricity generated from the treated water was necessary for manufacture and, without such inputs, manufacture of cement would not be possible.

Conclusion: The chemicals were held to be eligible inputs and the respondent was entitled to Modvat credit.

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