Modvat credit for paper-making inputs upheld where wire and felt were used in manufacture and not expressly excluded

Wire and felt used in a paper-making machine were treated as eligible Modvat inputs under Rule 57A because they were replaceable goods employed in relation to the manufacture of paper. The exclusion in clause (i) of the Explanation did not apply merely because the articles also functioned as parts of machinery. The stated principle is that goods used in the manufacturing process remain admissible for Modvat credit unless they are expressly covered by the exclusion clause.

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Issues: Whether wire and felt used in the paper-making machine were excluded by clause (i) of the Explanation to Rule 57A of the Central Excise Rules, 1944, or were eligible inputs for Modvat credit.

Analysis: The issue was governed by the Larger Bench view that felt, wire mesh and similar articles used in the paper-making process are replaceable goods employed in relation to the manufacture of paper and are not excluded merely because they function as parts of machinery. Their use in the manufacturing process brought them within the ambit of inputs under Rule 57A, and the exclusion clause did not apply.

Conclusion: Wire and felt were not excluded under clause (i) of the Explanation to Rule 57A of the Central Excise Rules, 1944, and were eligible for Modvat credit in favour of the assessee.

Ratio Decidendi: Goods used in the manufacturing process, even if they assist or form part of machinery, are eligible inputs for Modvat credit unless they are expressly covered by the exclusion clause.

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