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Issues: Whether DC motor and thyristor fitted on the slitter rewinder at the time of clearance were inputs used in or in relation to the manufacture of the final product so as to qualify for Modvat credit under Rule 57A.
Analysis: The entitlement to Modvat credit depended on the condition in which the machine was cleared from the factory and on whether the disputed items had a direct nexus with the functioning of the machine as cleared. Where the slitter rewinder was cleared with the DC motor and thyristor fitted, those items enabled the machine to become operational on supply of power and were therefore used in relation to the manufacture of the final product. A liberal construction was required in view of the beneficial nature of the scheme, and the relevant test was whether the inputs had a direct nexus with the manufacturing process up to the stage of the goods entering the market stream.
Conclusion: The DC motor and thyristor were eligible inputs for Modvat credit when fitted on the machine at the time of clearance, and the disallowance of credit was unsustainable.
Ratio Decidendi: Where an item fitted to a machine at clearance has a direct nexus with its operation and is necessary for the machine to function in the marketable state, it is used in relation to manufacture and qualifies as an input for Modvat credit.
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