Input used in manufacture includes partially spent sulphuric acid, preserving MODVAT credit despite residual by-product formation.

Sulphuric acid was treated as an input used in the manufacture of the final product because the relevant test is use in or in relation to manufacture, not complete consumption or assimilation into the product. The emergence of spent sulphuric acid as a residual by-product did not negate such use, and credit could not be denied merely on that basis. Applying that principle, MODVAT credit on sulphuric acid used in detergent manufacture was not recoverable under Rule 57-I once the input had been shown to be used in the manufacturing process.

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Issues: Whether sulphuric acid, though giving rise to spent sulphuric acid during the manufacturing process, was "used" in the manufacture of the final product so as to entitle the manufacturer to MODVAT credit, and whether such credit could be recovered under Rule 57-I of the Central Excise Rules, 1944.

Analysis: The relevant scheme allows credit of duty paid on inputs used in or in relation to the manufacture of the final product. The decisive question is use in the manufacturing process, not complete consumption or total assimilation into the final product. The Court distinguished between "used" and "consumed" and held that an input physically subjected to the manufacturing process is used even if a residual portion emerges as spent acid. Reliance was placed on the principle applied in the cited Supreme Court decision that credit cannot be denied merely because a part of the input emerges as a by-product during the chemical process. The later Board circular also supported full credit on sulphuric acid used in detergent manufacture.

Conclusion: The sulphuric acid was used in the manufacture of the final product, and MODVAT credit already allowed could not be recovered under Rule 57-I.

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