Modvat credit on oxygen gas used for indispensable cutting operation in steel manufacture was held admissible.

Oxygen gas used to cut billets and blooms to sizes suitable for feeding into rolling mills was treated as an input used in or in relation to manufacture, because the cutting operation was an indispensable intermediate step in producing bars and rods. The gas was not regarded as merely a separate tool use, as the material could not be further processed without that operation. Modvat credit was therefore admissible.

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Issues: Whether oxygen gas used for cutting billets and blooms to requisite size in the manufacture of bars and rods is an input used in or in relation to manufacture so as to qualify for Modvat credit.

Analysis: Oxygen gas was used to cut billets and blooms to sizes suitable for feeding into rolling mills for conversion into bars and rods. Without such cutting, the material could not be processed further into the final products. The cutting operation was therefore part of the entire manufacturing process and not a merely independent use of the gas as a tool.

Conclusion: Oxygen gas is an input used in or in relation to the manufacture of bars and rods, and Modvat credit is admissible to the assessee.

Ratio Decidendi: An item used for an indispensable intermediate operation that forms part of the manufacturing process is an input used in or in relation to manufacture and is eligible for Modvat credit.

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