Modvat credit on paper-manufacturing inputs allowed for felt cloth and wire netting used in production.

Felt cloth and wire netting used in the manufacture of paper and paper boards qualify as inputs for Modvat credit under Rule 57-A because the provision extends credit to goods used in or in relation to manufacture, directly or indirectly, even if not contained in the final product. The exclusion for machines, machinery, equipment, apparatus, tools, appliances and capital goods under Rule 57B does not cover these materials. Relying on prior decisions treating similar paper-manufacturing materials as inputs, the court held that credit was available to the assessee and not to be denied as capital goods.

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Issues: Whether felt cloth and wire netting used in the manufacture of paper and paper boards are eligible inputs for Modvat credit under Rule 57-A.

Analysis: Rule 57-A permits credit on inputs used in or in relation to the manufacture of final products, directly or indirectly, whether or not contained in the final product. The exclusion for machines, machinery, equipment, apparatus, tools, appliances and capital goods under Rule 57B does not cover the present material. The reasoning is supported by prior decisions treating similar materials used in paper manufacture as inputs eligible for credit.

Conclusion: Felt cloth and wire netting used in the manufacture of final products are entitled to Modvat credit, and the issue is answered in favour of the assessee and against the Revenue.

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