Modvat credit on coated abrasives used for polishing watch components was held admissible as manufacturing inputs.

Coated abrasives used in the polishing section for finishing watch components were treated as admissible inputs for Modvat credit under Rule 57A of the Central Excise Rules, 1944. The Tribunal applied the principle that items used in or in relation to manufacture, with a direct nexus to the final product, qualify as inputs even if they are consumables that wear out and require replacement. It held that these abrasives were not merely parts of machinery within the exclusion clause, so the exclusion did not apply. Modvat credit was therefore allowable to the assessee.

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Issues: Whether coated abrasives used in the polishing section for polishing watch components were admissible as inputs for Modvat credit under Rule 57A of the Central Excise Rules, 1944.

Analysis: The items were used in the manufacturing process for polishing and finishing the watch components and were consumables which wore out and required periodic replacement. Applying the Larger Bench ruling on items used in or in relation to manufacture, the Tribunal held that such goods were not merely parts of machinery in the excluded sense, but goods having direct nexus with the manufacture of the final product. The exclusion clause in Rule 57A was therefore not attracted.

Conclusion: The coated abrasives were admissible as inputs and Modvat credit was allowable in favour of the assessee.

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