Modvat credit for manufacturing inputs allowed where cleaning, spinning, heating, and chilling materials had direct functional nexus.

Modvat credit was treated as admissible on inputs used directly in or in relation to manufacture where each item had a functional nexus with the process. Trichloro Ethylene was used to clean spinnerettes and jets to prevent clogging; Silicon Spray was applied to jet holes to support proper spinning and formed part of the fibre or yarn; Diphyle Oil acted as a heating medium in polymerisation to maintain the temperature needed for producing fibre of the correct denier; Freon and Mefron chilled DMAC required for dope preparation in acrylic fibre processing. On that basis, all the items were covered as eligible inputs.

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Issues: Whether Modvat credit was admissible on Trichloro Ethylene, Silicon Spray, Diphyle Oil, Freon and Mefron as inputs used in or in relation to the manufacture of the final products.

Analysis: Trichloro Ethylene was used for cleaning spinnerettes and jets to keep the holes unclogged so that fibre of the correct denier could be produced. Silicon Spray was sprayed on the holes of jets to ensure proper spinning and became part of the fibre or yarn. Diphyle Oil served as a heating media in the polymerisation section to maintain the constant temperature necessary for manufacture of fibre of correct denier. Freon and Mefron were used for chilling DMAC, which was required for dope preparation in the processing of acrylic fibre. Each item was found to have a direct functional connection with the manufacturing process and was covered by the reasoning applied in the cited Tribunal decisions.

Conclusion: Modvat credit was admissible on all the four items.

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