Broad construction of "inputs" under MODVAT rules allowed credit for aluminium cathodes used directly in zinc manufacture.

Aluminium sheets used as cathodes in the electrolysis process for manufacture of unwrought zinc were treated as eligible inputs under Rule 57A of the Central Excise Rules. The tribunal held that the sheets were used directly in production, were replaced after losing utility, and were not machinery, plant, equipment, apparatus, tools or appliances. It also rejected any implied exclusion of parts of excluded equipment, and construed the term "inputs" broadly to cover goods used "in or in relation to" manufacture where they participate in the production process. MODVAT credit was therefore admissible.

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Issues: Whether aluminium sheets used as cathodes in the electrolysis process for manufacture of unwrought zinc were eligible for MODVAT credit under Rule 57A of the Central Excise Rules.

Analysis: The aluminium sheets were used directly in the manufacturing process and were replaced after losing utility, with the discarded material being sold as scrap. They were not themselves machinery, plant, equipment, apparatus, tools or appliances, and there was no legal basis to treat parts of excluded equipment as excluded by implication. The expression "inputs" under Rule 57A was of wide import, and goods used "in or in relation to" manufacture were covered where they participated in the process of production. Reliance was placed on the broad construction of similar expressions and on earlier tribunal reasoning treating similar consumable items as eligible inputs.

Conclusion: Aluminium sheets were eligible inputs under Rule 57A and MODVAT credit was admissible; the assessee succeeded.

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