Strict construction of Modvat exclusions means coated abrasive paper is a consumable input, not an excluded tool or equipment.

Exclusions under the Modvat scheme require strict construction, so coated abrasive paper used for polishing plywood was not treated as an excluded input merely because it was used in a machine. Tariff classification was relevant, and the goods had been classified under Heading 68 rather than as tools under Chapter 82. The paper was held to be a consumable item used in the manufacturing process, not machinery, equipment or a tool, and was therefore eligible for Modvat credit. The department's attempt to recharacterise it as machinery or equipment was rejected as inconsistent with the notice and appeal grounds and unsustainable on merits.

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Issues: Whether coated abrasive paper used for polishing plywood is an excluded input as a tool, appliance, machinery or equipment under Rule 57A of the Central Excise Rules, 1944 and therefore ineligible for Modvat credit.

Analysis: The exclusion in the Modvat scheme was held to require strict construction. Tariff classification was treated as relevant, and the goods had been classified under Heading 68, while tools specifically figure under Chapter 82. The paper was held to be a consumable item used in a machine and not itself machinery, equipment or a tool. A new attempt by the department to recharacterise the goods as machinery or equipment was rejected as inconsistent with the notice and appeal grounds and not sustainable on merits.

Conclusion: Coated abrasive paper used for polishing plywood is not an excluded input and is eligible for Modvat credit.

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