Broad construction of input for modvat credit includes materials used in manufacture, excluding only specified capital items.

Rule 57A allows modvat credit on inputs used in or in relation to manufacture of final products, whether directly or indirectly and whether or not they are contained in the finished goods. The explanation excludes only specified categories such as machines, machinery, equipment, apparatus, tools, appliances and capital goods. On that construction, items like heating elements, emery belt, fire clay, graphite powder, aluminium powder, grinding wheel, plastic tape and mould cote were treated as eligible inputs because they formed part of the manufacturing process and did not fall within the excluded categories.

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Issues: Whether the specified items, namely heating elements, emery belt, fire clay, graphite powder, aluminium powder, grinding wheel, plastic tape and mould cote, qualified as inputs for the purpose of modvat credit under Rule 57A, and whether they were hit by the excluded category in the Explanation to that rule.

Analysis: Rule 57A permits credit on inputs used in or in relation to the manufacture of final products, whether directly or indirectly and whether contained in the final product or not. Rule 57B excludes only specified categories such as machines, machinery, equipment, apparatus, tools, appliances and capital goods. The statutory scheme therefore allows credit where the material is used in relation to manufacture of final products, and the cited decisions support a broad construction of "input" so as to include materials used in the manufacturing process and even parts of machinery where they form part of the manufacturing chain.

Conclusion: The specified items were held to be eligible for modvat credit and not barred by the excluded category. The question was answered in favour of the assessee and against the revenue.

Final Conclusion: The reference was answered by recognizing entitlement to modvat credit on the disputed items as inputs used in relation to manufacture.

Ratio Decidendi: For modvat purposes, materials used in or in relation to the manufacture of final products are eligible as inputs unless they fall within the specific excluded categories of machines, machinery, equipment, apparatus, tools, appliances or capital goods.

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