Modvat credit on gas process losses in manufacture was sustained, and the related penalty was set aside.

Process losses of gases during debulking, storage and cylinder filling were treated as inputs used in or in relation to manufacture, so Modvat credit was not required to be reversed. The Tribunal relied on precedent allowing credit in comparable gas-loss situations, including cases where part of the gas was later returned, and held that the cited authorities fully covered the controversy. As the credit was sustainable, the related penalty did not survive.

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Issues: Whether modvat credit was reversible for losses of gases occurring during debulking, storage, and filling in the course of manufacture, and whether the related penalty was sustainable.

Analysis: The Tribunal held that the process losses during filling of cylinders had already been treated in precedent as use of inputs in or in relation to manufacture. It also noted that credit had been allowed in comparable cases involving loss of gas during manufacturing operations and even where part of the gas was later returned. The cited authorities covered the controversy fully.

Conclusion: The credit was not liable to be reversed for the process losses, and the penalty did not survive.

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