Modvat credit eligibility upheld for cutting gases used in manufacture, as they were not treated as excluded tools.

Dissolved acetylene and compressed oxygen gas used for cutting and welding in manufacturing weighing machines were treated as inputs used in relation to manufacture and not as excluded tools under Rule 57A. The gases did not lose Modvat eligibility merely because they performed a cutting function, and the exclusion clause was held inapplicable. Board instructions stating that oxygen and acetylene gas used to cut raw materials into smaller pieces for use in the end product were eligible for credit were treated as clarificatory and binding on departmental officers absent any contrary decision. Modvat credit was therefore upheld.

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Issues: Whether dissolved acetylene and compressed oxygen gas used for cutting and welding in the manufacture of weighing machines were excluded from Modvat credit under Rule 57A as a tool.

Analysis: The gas was used in relation to the manufacture of the final product. Although it performed a cutting function, it was not itself a tool within the exclusion clause of Rule 57A. The Board's instructions clarifying that oxygen and acetylene gas used for cutting raw materials into smaller pieces for use in the end-product were eligible for Modvat credit were treated as clarificatory and binding on departmental officers in the absence of any contrary decision. On that basis, the entitlement to credit was upheld.

Conclusion: The gases were not excluded by Rule 57A and the assessee was entitled to Modvat credit.

Final Conclusion: The departmental appeal failed and the order allowing Modvat credit was sustained.

Ratio Decidendi: An item used in relation to manufacture does not lose eligibility for Modvat credit merely because it performs a cutting function, unless it falls within the specific exclusion clause as a tool.

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