Modvat credit on inputs used in manufacture need not depend on physical presence in the finished product

Modvat credit was admissible on cleaning reducer, coating reducer and vinyl reducers used in the manufacture of pilfer-proof caps and crown corks because inputs used in or in relation to manufacture qualified unless specifically excluded. The requirement that the input be physically present in the finished product was rejected. Goods used for cleaning raw material or diluting inks and paints to make them suitable for manufacture were treated as eligible inputs under the Modvat scheme, subject to exclusionary provisions.

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Issues: Whether Modvat credit was admissible on cleaning reducer, coating reducer and vinyl reducers used in the manufacture of pilfer-proof caps and crown corks, and whether such inputs had to be physically present in the final product to qualify for the benefit.

Analysis: Modvat credit was held to be available so long as the goods were used in or in relation to the manufacture of the final products and were not specifically excluded. The requirement that the input should be physically present in the finished product was rejected. Goods used for cleaning raw material and for diluting inks or paints to make them suitable for use in manufacture were treated as qualifying inputs within the scope of the Modvat scheme, subject to the applicable exclusionary provisions.

Conclusion: The appeal was allowed and Modvat benefit was held admissible to the appellants on the inputs in question.

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