Modvat credit exclusion for sand mould inputs applied where moulds functioned as equipment in the manufacturing process.

Chemicals used to prepare sand moulds were treated as inputs used in equipment or apparatus for manufacture, so they fell within the exclusion in the explanation to Rule 57A and did not qualify for Modvat credit. The note also rejects the alternative argument under Rule 57D, stating that the moulds were separately manufactured and used for casting, rather than arising as intermediate products in the course of making the castings. The point whether the moulds were marketable or finished excisable goods was treated as immaterial to that controversy. On that reasoning, the demand was sustained and the assessee's claim failed.

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Issues: Whether chemicals used in the preparation of sand moulds were eligible for Modvat credit under Rule 57A, and whether the claim could be sustained either on the footing that the moulds were intermediate products under Rule 57D or that Rule 57C applied only if the moulds were treated as final products.

Analysis: The inputs were admittedly used not in the final castings but in the preparation of sand moulds. The moulds were made separately, were used for casting, and functioned as apparatus or equipment for the manufacturing operation. On that footing, the exclusion in the explanation to Rule 57A applied, because inputs used in machines, machinery, plant, equipment, apparatus, tools or appliances are not eligible for Modvat credit. The question whether some moulds were marketable or whether they constituted finished excisable goods was held to be immaterial to the real controversy. The alternative plea under Rule 57D also failed because the moulds did not arise as an intermediate product in the course of manufacture of the castings; they were independently manufactured and used for casting.

Conclusion: The inputs used in sand moulds were not eligible for Modvat credit. The claim was held against the assessee and in favour of the Revenue.

Final Conclusion: The appeals failed and the departmental demand was sustained because the moulds were treated as equipment used for casting, taking the inputs outside the Modvat scheme.

Ratio Decidendi: Inputs used in equipment or apparatus employed in manufacture are excluded from Modvat credit under Rule 57A, and a separately manufactured item used in casting does not qualify as an intermediate product for Rule 57D.

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