Input used in relation to manufacture: Nitrogen gas qualified for Modvat credit because it was essential to the production process.

Nitrogen gas used to create an inert atmosphere in the manufacture of MMA monomer qualified as an input used in or in relation to manufacture under Rule 57A, because the rule extends Modvat credit beyond materials physically entering the product to inputs essential to the process. The gas was used to blanket the reactor and buffer vessel, prevent evaporation and polymerisation of HCN, maintain its utility as an ingredient, and avoid choking of the process. As the inert atmosphere was necessary for carrying on manufacture and obtaining the final product, the gas fell within the rule and credit was admissible; the demand disallowing credit was unsustainable.

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Issues: Whether Nitrogen gas used to create an inert atmosphere in the manufacture of MMA Monomer was an input used in or in relation to manufacture so as to qualify for Modvat credit under Rule 57A.

Analysis: The claim that Nitrogen gas was declared as an input was undisputed, and the authorities below did not disbelieve its use in the manufacturing process. Rule 57A permits credit not only for materials entering the product mix but also for inputs used in relation to manufacture. Nitrogen gas was used to blanket the reactor and buffer vessel, prevent evaporation and polymerisation of HCN, maintain its utility as an ingredient, and avoid choking of the process. Since the inert atmosphere was essential to carry on manufacture and to obtain the final product, the gas was used in relation to manufacture within the scope of the rule.

Conclusion: Nitrogen gas was eligible for Modvat credit, and the demand disallowing such credit was unsustainable.

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