Modvat credit for furnace inputs survives the exclusion clause when the materials form part of the manufacturing process.

Materials used as inputs in or in relation to the manufacture of final products remain eligible for Modvat credit under Rule 57A, even when used in the furnace or manufacturing process indirectly. The exclusion clause is confined to machines, machinery, equipment, apparatus, tools, appliances and capital goods, and does not extend to foundary flux, IR, mix, refractories, mortar and similar consumables forming part of production. On that reasoning, such materials are not treated as excluded capital goods and the manufacturer is entitled to credit on them.

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Issues: Whether foundary flux, IR, mix, refractories, mortar and similar materials used in the furnace are excluded from Modvat credit as machinery, apparatus, tools, appliances or capital goods under the exclusion clause of Rule 57A.

Analysis: Rule 57A permits Modvat credit on inputs used in or in relation to the manufacture of final products, whether directly or indirectly and whether or not contained in the final product. The exclusion is confined to machines, machinery, equipment, apparatus, tools, appliances and capital goods. Materials used as inputs in the furnace and forming part of the manufacturing process fall within the beneficial credit scheme. The reasoning is supported by the view that even materials and parts used in manufacture, rather than the machinery itself, are eligible inputs.

Conclusion: The materials in question are not hit by the exclusion clause and the manufacturer is entitled to Modvat credit on them. The issue is answered in favour of the assessee and against the Revenue.

Ratio Decidendi: Materials used as inputs in or in relation to the manufacture of final products are eligible for Modvat credit unless they themselves fall within the specific exclusion for machinery or capital goods.

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