Modvat credit allowed for chemicals and resin used to make indispensable sand moulds in steel casting manufacture.

Chemicals and resin used to prepare sand moulds for steel castings were treated as inputs used in relation to manufacture for Modvat credit purposes. The expressions in Rule 57A were construed broadly, so goods need not enter the main stream of production if they play a significant and indispensable role in bringing the final product into existence. Because the sand moulds were essential to the casting process and were not marketable excisable goods, the duty-paid chemicals and resin were held eligible for credit.

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Issues: Whether chemicals and resin used in preparing sand moulds for manufacture of steel castings qualify as inputs used in or in relation to the manufacture of the final product for Modvat credit.

Analysis: The sand moulds were found to have no marketability and were not treated as excisable goods. The expressions used in Rule 57A were construed broadly, so that goods need not be part of the main stream of manufacture to qualify as inputs if they have a significant role in bringing the final product into existence. Chemicals and resin used to prepare sand moulds were held to be sufficiently connected with the manufacture of steel castings because the moulds were indispensable to the process, and the contrary view was rejected.

Conclusion: The appellants were entitled to Modvat credit on the duty paid on chemicals and resin used in preparing sand moulds for manufacture of steel castings.

Ratio Decidendi: Goods used to create an indispensable manufacturing aid that is employed in relation to the production of the final product qualify as inputs for Modvat credit, even if they are not directly consumed in the main stream of manufacture.

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