MODVAT credit denied for sand paper treated as a machine accessory rather than a manufacturing input

Sand paper mounted on sanding drums in plywood manufacture was treated as an accessory or tool of the sanding machine, not as an input used in or in relation to manufacture under MODVAT Rule 57A. Because machinery, equipment and their functional parts fall outside the MODVAT scheme, the Tribunal held that an item serving only to make the machine operate for finishing and smoothing the product is excluded from credit. MODVAT credit on sand paper was therefore disallowed and the Revenue's position was upheld.

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Issues: Whether sand paper used in the manufacture of plywood was eligible for MODVAT credit under Rule 57A, or whether it was excluded as a tool or an accessory of the sanding machine.

Analysis: Sand paper was found to be mounted on the sanding drums and to function as an abrasive for finishing wood and giving the plywood a smooth surface. The Tribunal treated its role as akin to an accessory necessary to make the machine functional, rather than as an input going directly into the manufacturing stream. Applying the principle that machinery, equipment and their functional parts are outside the MODVAT scheme, and that items operating as tools or accessories are not covered by the expression input used in or in relation to manufacture, the Tribunal distinguished the authorities relied upon by the assessee.

Conclusion: Sand paper was held not eligible for MODVAT credit and was treated as a tool/accessory excluded from Rule 57A.

Final Conclusion: The Revenue succeeded and the grant of MODVAT credit on sand paper was set aside.

Ratio Decidendi: An item mounted on machinery and functioning as an accessory or tool to make the machine operate for finishing the product is not an input used in or in relation to manufacture for MODVAT purposes under Rule 57A.

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