Testing materials as Modvat inputs where necessary to make finished goods marketable before delivery

Printing ink used to test printing machines before delivery was treated as an input for Modvat credit because the machines had to be tested to ensure proper functioning before customer acceptance, and materials used to make finished goods marketable can qualify as inputs under the Central Excise Rules. On that basis, the demand and penalty were not sustained. The limitation objection regarding the earlier period was not examined in view of this conclusion.

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Issues: Whether printing ink used for testing printing machines before delivery is an input eligible for Modvat credit under the Central Excise Rules, and whether the extended period and penalty could survive.

Analysis: The machines had to be tested after manufacture to ensure that they functioned properly before being accepted by customers. Goods required to be made marketable form part of manufacture, and materials used for that purpose can constitute inputs. Printing ink used in the testing process was therefore connected with making the finished machines marketable. In view of this conclusion, it was unnecessary to examine the limitation objection relating to the earlier period.

Conclusion: Printing ink used for testing the printing machines was held to be an input, and the demand and penalty could not be sustained.

Ratio Decidendi: Materials used in testing finished goods, where such testing is necessary to make the goods marketable, qualify as inputs for Modvat purposes.

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