Modvat credit on consumable items used in manufacture cannot be denied merely because they form part of plant or machinery.

Modvat credit was treated as available on synthetic filter cloth and asbestos millboard because both items were used as consumables in the manufacturing process of aluminium. Synthetic filter cloth was employed in filtering operations integral to manufacture, while asbestos millboard was used for an orifice plate regulating metal flow between the feed box and mould. The commentary applies the phrase "in or in relation to manufacture" broadly, stating that inputs used directly or indirectly in production qualify even if they are also described as part of plant or machinery. On that basis, denial of credit on the ground that the items were not inputs was unsustainable.

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Issues: Whether Modvat credit could be denied on synthetic filter cloth and asbestos millboard on the ground that they were not inputs but part of plant and machinery.

Analysis: The disputed items were used in the manufacturing process of aluminium and were consumable in nature. Synthetic filter cloth was used in filtering operations integral to the process of manufacture. Asbestos millboard formed the material for an orifice plate used to regulate the flow of metal between the feed box and mould, and the lower authorities did not dispute its consumable character. The expression "in or in relation to manufacture" was applied in a broad manner, consistent with the settled view that inputs used directly or indirectly in the manufacturing process cannot be excluded merely because they are not part of the finished product.

Conclusion: Modvat credit on both synthetic filter cloth and asbestos millboard was allowable, and the denial by the lower authorities was unsustainable.

Ratio Decidendi: Consumable items used directly or indirectly, or otherwise in relation to the manufacture of the finished product, qualify as inputs for Modvat credit purposes and cannot be denied credit merely because they are also described as part of machinery or plant.

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