Intermediate manufacturing input qualifies for Modvat credit where it is integrally connected to production.

Hydrogen gas used at an intermediate stage in the manufacture of sodium cyanide was treated as an input used in relation to manufacture for Modvat credit purposes under Rule 57A of the Central Excise Rules, 1944. Although it was not a direct component of the final product, it had an integral role in the production process and the final product could not emerge without its use at the relevant stage. On that broader reading, the input was held eligible for Modvat credit.

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Issues: Whether hydrogen gas used at an intermediate stage in the manufacture of sodium cyanide was an eligible input for Modvat credit under Rule 57A of the Central Excise Rules, 1944.

Analysis: The disputed input was not used directly as a component of the final product, but it had a significant role in the manufacturing process and the final product could not emerge without its use at the appropriate stage. The expression "inputs used in relation to the manufacture" was applied broadly, and earlier restrictive views were treated as having been displaced by later decisions recognising eligibility where the input is integrally connected with the manufacturing process, even if not consumed in the final product itself.

Conclusion: Hydrogen gas was an eligible input for Modvat credit as it was used in relation to the manufacture of sodium cyanide.

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