Modvat credit cannot be denied where inputs were actually used in manufacture, despite mismatch with specification requirements.

Modvat credit on inputs used in the manufacture of final products cannot be denied merely because the inputs are of lesser thickness, costlier, or not in line with DOT specifications, where actual use in manufacture is established. The record showed that sheets of 1.6 mm or less were used in producing poles supplied to DOT. On that factual basis, credit remained admissible on inputs used in or in relation to manufacture, and the denial of Modvat credit was not sustainable.

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Issues: Whether Modvat credit could be denied on inputs of lesser thickness on the ground that they were costlier and not in accordance with the DOT specifications, despite their use in the manufacture of the final product.

Analysis: Credit is admissible on inputs used in or in relation to the manufacture of the final product. The record showed that sheets of 1.6 mm or less were in fact used in the manufacture of poles supplied to the DOT. Once actual use in manufacture was established, credit could not be refused merely because the inputs were costlier or did not match the DOT specification.

Conclusion: The denial of Modvat credit was not sustainable and the assessee was entitled to the credit.

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