Inputs in manufacture include replaceable process materials; wire mesh and woollen felts qualified for Modvat credit under Rule 57A.

Wire mesh and woollen felts used in paper-making machinery were treated as inputs under Rule 57A because the phrase "in relation to" manufacture extends Modvat credit to goods integrally connected with the manufacturing process, even if they do not become part of the finished product. The exclusion for machines, machinery, plant, equipment, apparatus, tools or appliances was read as applying to self-contained machines or complete units, not to replaceable parts merely used in machinery. On that basis, the items were held to qualify as admissible inputs and were not covered by the exclusion.

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Issues: Whether wire mesh and woollen felts used in the paper-making machinery qualify as inputs under Rule 57A of the Central Excise Rules, 1944, or fall within the excluded category of machines, machinery, plant, equipment, apparatus, tools or appliances.

Analysis: Rule 57A extends Modvat credit not only to goods used in the manufacture of final products but also to goods used in relation to such manufacture. The expression "in relation to" enlarges the scope of inputs and covers goods that are integrally connected with the manufacturing process even if they do not become part of the finished product. The exclusion clause must be read as referring to self-contained machines or complete units and not to every part used in machinery, unless the part itself answers that description. Wire mesh and woollen felts were used in the paper-making process as replaceable goods essential to the manufacture of paper and paper products, and they do not answer the description of excluded machines or appliances.

Conclusion: Wire mesh and woollen felts are eligible inputs under Rule 57A and are not excluded by the proviso or exclusion clause in the Explanation.

Final Conclusion: The reference was answered against the Revenue and in favour of the assessee, and Modvat credit on the disputed items was held admissible.

Ratio Decidendi: Goods used in relation to manufacture, though not forming part of the end product, qualify as inputs under Rule 57A unless they are themselves complete machines or similar self-contained units expressly excluded by the rule.

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