Modvat credit denied for testing materials used only after manufacture of finished machines, not in relation to manufacture.

Laminated plastic films and poly papers used only to test the performance of fully manufactured form fill and seal machines were not treated as "inputs" under Rule 57A. The court reasoned that Modvat credit was available only for goods used in or in relation to manufacture, and manufacture ends when a new and marketable product comes into existence under Section 2(f) of the Central Excise Act. Because the materials were used after completion of manufacture, merely for inspection, trial, tuning, or demonstration before despatch, they did not form part of the manufacturing process or of the finished machine. Credit was therefore not admissible.

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Issues: Whether laminated plastic films and poly papers used for testing the performance of fully manufactured form fill and seal machines were "inputs" eligible for Modvat credit under Rule 57A; and whether such testing amounted to use in or in relation to the manufacture of the final product.

Analysis: Rule 57A allowed credit only on goods used in or in relation to the manufacture of the final product. The expression "manufacture" in Section 2(f) of the Central Excise Act, 1944 contemplates the process by which a new and marketable product comes into existence. The materials in question were used after the machines were fully manufactured, only for inspection, trial, tuning, or demonstration of performance before despatch. Such use did not become part of the manufacturing process and the materials did not form part of the machine itself. The distinction drawn in the authorities relied upon by the applicant was not accepted, because the present use was only for testing a finished machine and not for completing manufacture.

Conclusion: The materials used for testing were not inputs within Rule 57A and their use did not amount to use in or in relation to manufacture. The answer was against the assessee and in favour of the Revenue.

Final Conclusion: Modvat credit was not admissible on the flexible plastic films or poly papers used only for testing the performance of the finished machines.

Ratio Decidendi: Goods used merely for post-manufacture testing, inspection, or trial of a completed and marketable product are not "inputs" used in or in relation to manufacture for the purpose of Modvat credit.

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