Modvat credit on technical inputs and marketability aids upheld for manufacture of nitric acid and ammonium nitrate.

Modvat credit was admissible on silica gel, coating oil and platinum rhodium catalyst used in the manufacture of nitric acid and ammonium nitrate. Silica gel was treated as a technical necessity because it dried the air used in the manufacturing stream, which formed part of the raw material source. Coating oil qualified because it kept ammonium nitrate prills marketable by preventing lump formation, bringing it within use "in or in relation to manufacture." Platinum rhodium catalyst also qualified because it promoted the chemical reaction during manufacture while retaining its identity and was not excluded under Rule 57A. The assessee succeeded and the denial of credit did not survive.

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Issues: Whether Modvat credit was admissible on silica gel, coating oil, and platinum rhodium catalyst used in the manufacture of nitric acid and ammonium nitrate.

Analysis: Silica gel was treated as a technical necessity because it dried the air used in the manufacturing stream, and the air was regarded as part of the raw material source from which nitrous oxide was extracted. Coating oil was held to be used to keep ammonium nitrate prills in a marketable condition by preventing lump formation, bringing its use within the expression "in or in relation to manufacture." Platinum rhodium catalyst was found to promote the chemical reaction in the course of manufacture while retaining its identity, and its use was considered a technical necessity not falling within the excluded categories under Rule 57A of the Central Excise Rules.

Conclusion: Modvat credit was admissible on all three items and the appeal succeeded.

Final Conclusion: The assessee was held entitled to Modvat credit on the disputed inputs used in the manufacturing process, and the departmental denial of credit did not survive.

Ratio Decidendi: Materials used as a technical necessity, or for making the product marketable, may qualify for Modvat credit when they are used in or in relation to manufacture and are not excluded by the applicable rule.

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