Wide scope of "in relation to manufacture" supports Modvat credit for filter aid used in production.

Rule 57A was applied broadly to the expression "in relation to manufacture" so that inputs used in activities connected with production can qualify for Modvat credit even if they do not form part of the finished product. Dicamol, used as a filter aid to separate solids before extraction of the active ingredient, was treated as an eligible input because it was used in the manufacturing process and was covered by the wider ambit of the rule. Denial of credit was therefore unsustainable.

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Issues: Whether filter aid material known as Dicamol was an eligible input for availment of Modvat credit under Rule 57A.

Analysis: The dispute turned on the width of Rule 57A and the expression "in relation to manufacture". The material was used in the manufacturing process for separating solids before extraction of the active ingredient, and the governing Larger Bench view held that the rule covers goods used in any activity concerned with or pertaining to manufacture, even if they do not enter the finished product directly or indirectly and are not identifiable in the final product.

Conclusion: Dicamol was an eligible input for Modvat credit under Rule 57A, and the denial of credit was unsustainable.

Ratio Decidendi: The expression "in relation to manufacture" in Rule 57A has a wide ambit and extends Modvat credit eligibility to goods used in manufacturing activities connected with production, even if such goods do not form part of the finished product.

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