Broad meaning of "in or in relation to manufacture" supports Modvat credit for specially designed vehicle floor mats.

Modvat credit was held admissible on specially designed floor mats supplied with light commercial vehicles because they were normally supplied with the final product, included in its assessable value, and commercially necessary to make the vehicles marketable at the factory gate. The expression "in or in relation to the manufacture" was given a broad construction to cover not only items directly used in production but also components or accessories essential to the marketability of the finished goods. On that basis, the floor mats were treated as inputs connected with manufacture, and credit was allowed.

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Issues: Whether Modvat credit was admissible on specially designed floor mats supplied with light commercial vehicles as inputs used in or in relation to the manufacture of the final product.

Analysis: The floor mats were found to be specially designed to fit the vehicle cabin, supplied along with the vehicles, and included in the assessable value. The reasoning adopted a broad construction of the expression "in or in relation to the manufacture", holding that the expression covers not only items directly involved in the manufacturing process but also items that are essential for making the final product marketable at the factory gate. The decision relied on the principle that components or accessories normally supplied with the final product and commercially necessary for its marketing can qualify as inputs for Modvat credit.

Conclusion: Modvat credit on the floor mats was admissible and the Revenue's appeal was rejected.

Final Conclusion: The dispute was resolved in favour of allowing Modvat credit on the floor mats, treating them as inputs connected with the manufacture and marketability of the vehicles.

Ratio Decidendi: An item specially designed and normally supplied with the final product, which is necessary to render it marketable at the factory gate, falls within the expression "in or in relation to the manufacture" for Modvat credit purposes.

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