Modvat credit on mould-making inputs allowed for intermediate manufacture, while grinding wheels remained excluded as tools.

Modvat credit was considered admissible on inputs used to prepare sand moulds and sand cores for steel castings because those moulds formed an essential intermediate stage in the manufacture of the final product. Rule 57D(2) was read broadly so that an intermediate product emerging in a sequential manufacturing process within the factory remained within credit eligibility, and credit could not be denied merely because the intermediate stage was mould production. By contrast, grinding wheels were treated as tools and therefore fell within the exclusion under Rule 57A, so credit on that item was not available.

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Issues: Whether Modvat credit was admissible on inputs used in preparing sand moulds and sand cores for manufacture of steel castings, and whether such mould-related inputs could be treated as inputs used in or in relation to the manufacture of the final product.

Analysis: The inputs in dispute, other than grinding wheels, were used in the preparation of sand moulds, which formed an essential and integral stage in the manufacture of steel castings. The expression "intermediate product" in Rule 57D(2) was construed broadly to cover products emerging during sequential manufacturing processes within the factory, not merely products arising in a single process chain. Credit on inputs used in such intermediate manufacture could not be denied merely because the intermediate stage was sand mould production. Grinding wheels stood on a different footing and were treated as tools falling within the exclusion to Rule 57A.

Conclusion: Modvat credit on the mould-related inputs was admissible, and the appeals succeeded; credit on grinding wheels was not available.

Ratio Decidendi: Inputs consumed in the manufacture of an intermediate product used in the course of producing the final excisable product are eligible for Modvat credit, and the exclusion under Rule 57A applies to the relevant input only when the input itself falls within the exclusion.

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