Modvat credit for essential inputs used in bottle cleaning and syrup purification was held admissible for aerated water manufacture.

Modvat credit was treated as admissible on inputs used to clean glass bottles and purify sugar syrup in the manufacture of aerated water because both processes were considered technically necessary and directly connected with manufacture. Cleaning the bottles was regarded as an essential preparatory step, since the product was marketed in the bottles and could not emerge as a hygienic drink without that cleaning. Purification of sugar syrup was also treated as a prerequisite for use in the final product. The inputs were therefore held to be used in or in relation to manufacture, supporting credit entitlement in favour of the assessee.

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Issues: Whether modvat credit was admissible on inputs used for cleaning glass bottles and purifying sugar syrup in the manufacture of aerated water.

Analysis: The inputs were held to be technically necessary for manufacture. Cleaning of the bottles was treated as an essential preparatory step because the aerated water was marketed in the bottles and hygienically acceptable drinks could not emerge without such cleaning. Purification of sugar syrup was also treated as a technical necessity because clean syrup was a prerequisite for use in aerated water. The use of the inputs was therefore regarded as being in or in relation to the manufacture of the final product.

Conclusion: Modvat credit was held to be admissible on the disputed inputs, in favour of the assessee.

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