Modvat credit for bottle-washing inputs allowed where pre-filling cleaning was integral to manufacture of aerated water.

Caustic soda lye and flakes used to wash glass bottles before filling aerated water were treated as inputs used in relation to manufacture, because the cleaning stage was a necessary and integral part of preparing the excisable final product for clearance and marketing. The phrase "in relation to" was given a wide meaning, and the statutory definition of manufacture supported that broader reading. Modvat credit was therefore admissible, and the order denying credit was set aside with consequential relief.

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Issues: Whether caustic soda lye and flakes used for washing glass bottles before filling aerated water qualify for Modvat credit as inputs used in or in relation to the manufacture of the final product.

Analysis: Modvat credit is available for goods used in or in relation to manufacture, and the phrase "in relation to" has a widening effect. The bottled aerated water described under the relevant tariff heading is the excisable product, so the bottle-cleaning stage is not an independent container activity but a necessary and integral part of the manufacturing process. Without washing, the bottles cannot be filled in the manner required for clearance and marketing, and the inputs directly assist that process. The statutory definition of manufacture under Section 2(f) of the Central Excises and Salt Act, 1944 supports this broader understanding of manufacture.

Conclusion: The inputs were held to be used in relation to the manufacture of the final product and Modvat credit was admissible in favour of the assessee.

Final Conclusion: The appeal succeeded and the order denying credit was set aside, with consequential relief to follow.

Ratio Decidendi: Inputs used for a necessary and integral pre-filling process that enables the final excisable product to be cleared and marketed are used "in relation to the manufacture" and therefore qualify for Modvat credit.

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