MODVAT credit denied for inputs used to make sand moulds, as they were not intermediate goods in production.

Inputs used to manufacture sand moulds for steel castings were treated as outside MODVAT credit under Rule 57A because they were not used directly in the manufacture of the final castings. The sand moulds themselves were held not to be intermediate goods, as intermediate goods must arise in the manufacturing stream and participate as a step in production of the finished product. Goods in the nature of tools or apparatus, and inputs used to produce such items, fall outside Rule 57A. As the sand moulds were not intermediate goods, Rule 57D also did not apply, and the credit claim failed.

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Issues: Whether inputs used in the manufacture of sand moulds, which are then used for making steel castings, qualify for MODVAT credit under Rule 57A and whether such sand moulds can be treated as intermediate goods so as to attract Rule 57D.

Analysis: The inputs were used in the manufacture of sand moulds and not directly in the manufacture of the castings. Sand moulds were prepared independently for use in the casting process and did not emerge as intermediate goods in the manufacturing stream of the final product. On the accepted understanding of intermediate goods, such goods must arise in the course of manufacture and participate as a step in the production of the finished product. Goods which are themselves in the nature of tools or apparatus, or which are used to produce such tools or apparatus, fall outside the scope of Rule 57A. Since the sand moulds did not qualify as intermediate goods, Rule 57D was also inapplicable.

Conclusion: The inputs used for making the sand moulds were not eligible for MODVAT credit, and the claim under Rule 57D also failed.

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