Modvat credit on process inputs used in integrated manufacture of picture tubes was held admissible.

Modvat credit was admissible on caustic soda, hydrofluoric acid, hydrochloric acid, nitrogen gas and oxygen gas used at different stages of manufacture of monochrome picture tubes. The inputs performed essential functions in an integrated manufacturing process, including resin regeneration, chemical washing, lacquering under pressure and sealing of the electron gun, so they were treated as inputs even though not direct raw materials. Denial of credit was unsustainable.

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Issues: Whether modvat credit was admissible on caustic soda, hydrofluoric acid, hydrochloric acid, nitrogen gas and oxygen gas used in the manufacture of monochrome picture tubes.

Analysis: The inputs were found to be used at different stages of the manufacturing process and to perform essential functions in relation to manufacture of the final product. Caustic soda and hydrochloric acid were used for regeneration of resin in the deionisation process, which was necessary to transform inert glass shells into a condition suitable for further processing. Hydrofluoric acid was used in the chemical wash required before phosphorous coating. Nitrogen gas was used to create high pressure conditions for lacquering, and oxygen gas was used to generate the high temperature required for sealing the electron gun. The process was treated as an integrated manufacturing operation, and the goods were not regarded as outside the scope of inputs merely because they were not direct raw materials.

Conclusion: Modvat credit was admissible on all the disputed inputs and the denial of credit was unsustainable.

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