MODVAT credit denied for acid used only in post-manufacturing effluent treatment, not in chlorine manufacture.

Hydrochloric acid used only to treat effluent generated after chlorine production was not treated as an input used in or in relation to the manufacture of chlorine for MODVAT purposes. The relevant test was whether the material formed part of, or was inextricably linked with, the production stream leading to the final product; a separate post-manufacturing environmental treatment process did not satisfy that requirement. As the acid was applied to a distinct effluent-treatment stage involving different chemistry and not to bring about the emergence of chlorine, credit was held inadmissible.

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Issues: Whether hydrochloric acid used for treating effluent generated in the manufacture of chlorine was eligible for MODVAT credit as an input used in or in relation to the manufacture of the final product.

Analysis: The acid was used after the manufacturing process for chlorine had already produced the final product and was applied only to treat effluent generated as a by-product of that process. The relevant test under the notification is whether the input is used in or in relation to the manufacture of the finished product. Inputs used to bring about the emergence of the final product and which are inextricably linked with the production stream may qualify, but a separate post-manufacturing operation directed to environmental treatment of effluent does not form part of that manufacture. The treatment of effluent was held to be a distinct process involving a different chemistry and not a process indispensable to the emergence of chlorine.

Conclusion: The hydrochloric acid used for effluent treatment was not an input used in or in relation to the manufacture of chlorine, and MODVAT credit was not admissible.

Ratio Decidendi: Inputs used only in a separate post-manufacturing effluent-treatment process, and not in the production stream leading to the emergence of the final product, are not used in or in relation to manufacture for the purpose of MODVAT credit.

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