Input used in manufacture for blade sharpening qualified for Modvat credit because the solvent had a direct functional connection.

Mafron used as a solvent to dilute Vydax, which was then applied to the edge of razor blades for sharpening, was treated as having a direct functional connection with manufacture. Because the diluted material was used in the manufacturing process rather than as a remote or unrelated consumable, it satisfied the requirement of use in relation to manufacture. On that basis, the respondent was entitled to Modvat credit, and the departmental appeal failed.

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Issues: Whether Mafron used as a solvent to dilute Vydax, which was applied on the edge of razor blades for sharpening, qualified as an input used in relation to manufacture so as to entitle the respondent to Modvat credit.

Analysis: Mafron was found to be used as a solvent for diluting Vydax, and that diluted material was applied on the blade edge to improve sharpness. On that factual use, the input had a direct functional connection with the manufacturing process and could not be treated as a merely remote or unrelated consumable.

Conclusion: The input satisfied the requirement of use in relation to manufacture, and the respondent was entitled to Modvat credit. The departmental appeal failed.

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