Technical necessity in manufacture qualifies as Modvat input even if the material is discarded and not part of the finished product.

Grease proof paper used on a conveyor to prevent polyurethane foam from sticking, and discarded after use, was treated as an eligible Modvat input because it was a technical necessity in the manufacturing process and operated as a barrier directly connected with manufacture. The rule was applied on the basis that goods used in or in relation to manufacture need not form part of the finished product. The paper also did not fall within the excluded categories in the explanation to Rule 57A, so its exclusion by the lower authorities was not sustainable.

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Issues: Whether grease proof paper used on a conveyor to prevent polyurethane foam from sticking, and removed as waste after use, is an eligible input for Modvat credit under Rule 57A.

Analysis: The use of the grease proof paper was found to be a technical necessity in the manufacturing process because the foam had to be formed on the conveyor and then peeled off without sticking. The paper did not merely serve the plant as an appliance or apparatus; it functioned as a barrier directly connected with the manufacture of the final product. The rule required only that the goods be used in or in relation to manufacture, and did not require that they form part of the final product. The paper was also held not to fall within the excluded categories in the explanation to Rule 57A.

Conclusion: Grease proof paper is an eligible input for Modvat credit and its exclusion by the lower authorities was not sustainable.

Ratio Decidendi: Goods used as a technical necessity in the manufacturing process, even if they do not form part of the finished product and are later discarded, are inputs used in or in relation to manufacture unless they clearly fall within the excluded categories under Rule 57A.

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