Modvat credit for steel balls in grinding process upheld as inputs used in manufacture, not excluded tools or equipment.

Steel balls used in ball mills for grinding material in the manufacture of soft ferrite were treated as inputs used in relation to manufacture under Rule 57A of the Central Excise Rules, 1944. Because the grinding process could not be completed without them, and they wore out and were replaced periodically, they had a functional nexus with the manufacturing process. They were also not regarded in trade as tools or equipment, despite the department's objection, and their classification under Chapter 72 supported their character as consumables rather than excluded implements. Modvat credit was therefore admissible.

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Issues: Whether steel balls used in ball mills for grinding purposes were inputs used in relation to the manufacture of soft ferrite so as to qualify for Modvat credit, and whether they were excluded as tools or equipment under Rule 57A of the Central Excise Rules, 1944.

Analysis: Rule 57A permits credit for goods used in or in relation to the manufacture of the final product. The steel balls were used in ball mills for grinding the material required for manufacture of soft ferrite, without which the process could not be completed. They wore out in use and were replaced from time to time, showing their functional nexus with manufacture. Although the department treated them as tools or equipment, they were classifiable under Chapter 72 of the Central Excise Tariff Act, 1985 and were not known or traded in the market as tools or equipment. Their repeated use and wear also supported their role as consumables used in the manufacturing process.

Conclusion: Steel balls were inputs used in relation to manufacture and were not covered by the exclusion clause. Modvat credit was admissible to the assessee.

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