Inputs for Modvat credit may include goods used indirectly in manufacture if they are not specifically excluded.

Goods used directly or indirectly in or in relation to manufacture can qualify as inputs under Rule 57A after the June 1995 amendment, even if they do not enter the physical stream of production. Hytherm 500 oil, hydraulic oil, lubricating oils, resins and cooling liquid were treated as having an indirect but real nexus with manufacture because they were used in essential processes, machinery operation and handling of workpieces. As they did not fall within the excluded category in the rule's explanation, Modvat credit was admissible and the orders denying credit were unsustainable.

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Issues: Whether the disputed goods were "inputs" under Rule 57A and whether they fell within the excluded category so as to deny Modvat credit.

Analysis: The amendment to Rule 57A in June 1995 widened the expression "inputs" to cover goods used in or in relation to the manufacture of final products, whether directly or indirectly. Goods such as Hytherm 500 oil, hydraulic oil, lubricating oils, resins and cooling liquid were found to be used in processes essential for the manufacture or for the effective operation of machinery and the handling of workpieces. The use was not confined to mere remote maintenance; the goods had an indirect but real nexus with manufacture and did not answer the description of excluded inputs in the explanation to the rule.

Conclusion: The goods qualified as inputs under Rule 57A and were not covered by the exclusion clause; Modvat credit was admissible.

Final Conclusion: The impugned orders denying credit were unsustainable and the appeals succeeded.

Ratio Decidendi: Goods need not enter the physical stream of manufacture to qualify as inputs if they are used directly or indirectly in relation to manufacture and are not specifically excluded by the rule.

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