Modvat credit on process chemicals and carbon-di-oxide allowed where inputs were necessary for effective manufacture

Modvat credit was treated as admissible for cleaning and degreasing chemicals used at different stages of manufacture because the materials were necessary before later processes such as electroplating and phosphating could be carried out effectively. Carbon-di-oxide was also treated as eligible, as technical material showed it performed a necessary function in welding and was directly related to manufacture of the wheel. The operative principle stated is that an input qualifies for Modvat credit when it is used in the manufacturing process, or in relation to manufacture, and is shown to be necessary for effective completion of that process.

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Issues: Whether Modvat credit was admissible on cleaning and degreasing chemicals and on carbon-di-oxide used in the course of manufacture of the finished product.

Analysis: The use of cleaning and degreasing chemicals at different stages of manufacture was not disputed, and there was no rebuttal that such operations were required before subsequent manufacturing processes such as electroplating and phosphating could be carried out effectively. On the evidence produced, these materials were held to be used in or in relation to the manufacture of the final product within the scope of Modvat credit. As regards carbon-di-oxide, the technical literature showed that it served a necessary function in the welding process and was related to the manufacture of the wheel, which depended on sound welding. The use was therefore treated as part of the manufacturing process and not as a merely incidental input.

Conclusion: Modvat credit was held admissible on both the cleaning and degreasing chemicals and carbon-di-oxide, and the denial of credit was set aside.

Ratio Decidendi: An input is eligible for Modvat credit if it is used in the manufacturing process or in relation to manufacture and is shown to be necessary for effective completion of the process.

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