MODVAT credit allowed for photo film used in essential in-factory testing to make cameras marketable.

Photo film used inside the factory for technical adjustments to set camera parameters, remove distortion, and determine the least count of a semi-automatic camera was treated as material used in relation to manufacture. Because the process was essential to render the finished camera marketable, it was not a mere post-manufacture quality check. The photo film therefore qualified for MODVAT credit, and the disallowance was not sustainable.

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Issues: Whether photo film used in setting the camera parameters and making the finished camera marketable was eligible for MODVAT credit.

Analysis: The film was used within the factory for technical adjustments necessary to remove distortion and determine the least count before the semi-automatic camera could be put in the market. The use was not a mere post-manufacture quality check but an essential process connected with rendering the finished product marketable. Material used to render goods marketable is treated as use in relation to manufacture for MODVAT purposes.

Conclusion: The photo film qualified for MODVAT credit and the disallowance was not sustainable.

Ratio Decidendi: Material consumed within the factory in processes essential to make the finished product marketable is eligible as use in relation to manufacture for MODVAT credit.

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