Input credit on partly finished machinery upheld where further manufacture created new final products.

Goods received in a factory can qualify as inputs for credit purposes when they are subjected to further manufacturing and become component parts of a new final product. Credit was held admissible on partly finished screen printing machines used in the manufacture of electrically operated screen printing machines, because the activity amounted to manufacture under Section Note 6 of Section XVI and the machinery was used as an input in further production. The Revenue's objection was rejected, the lower authorities' orders were set aside, and the appeal was allowed.

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Issues: Whether credit was admissible on partly finished screen printing machines received in the factory and used for further manufacture of electrically operated screen printing machines, and whether the activity amounted to manufacture so as to treat the goods as inputs.

Analysis: Goods which are final products in the hands of one person may become inputs in the hands of another person if they are subjected to further manufacturing process. Rule 57A did not permit credit on machinery as such, but Rule 57B(2) carved out an exception where such machines, machinery or equipment were used as component parts in the manufacture of final products. The process undertaken by the appellant was held to amount to manufacture under Section Note 6 of Section XVI, and the purchased machines were used as inputs in the further manufacture of the final product.

Conclusion: Credit was admissible and the Revenue's objection was rejected.

Final Conclusion: The lower authorities' orders were set aside and the appeal was allowed.

Ratio Decidendi: Where goods received in a factory are subjected to further manufacturing so that they become component parts in the manufacture of a new final product, they may qualify as inputs for credit purposes, and the activity may constitute manufacture.

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