Modvat credit for manufacturing inputs used to protect, preserve, and make the final product marketable was upheld.

Mould cleaning compound used in the manufacturing process to protect the product from contamination, extend its life, and make it marketable was treated as an input used in or in relation to manufacture. The finding that it was directly connected with manufacture was accepted, and the principle that items forming part of the manufacturing process or required to render the final product marketable qualify as raw material or component inputs was applied. On that basis, the compound was eligible for Modvat credit and the departmental appeal failed.

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Issues: Whether mould cleaning compound used in the manufacture of the final product was eligible for Modvat credit.

Analysis: The compound was used during the manufacturing process to protect the product from contamination, improve its life, and make it marketable according to specifications. The finding that it was directly related to manufacture was accepted. Following the principle that an item forming part of the manufacturing process or required to make the article marketable is treated as a raw material or component used in manufacture, and applying the same approach to inputs used in manufacture, the item was held to satisfy the eligibility test.

Conclusion: The mould cleaning compound was eligible for Modvat credit and the departmental appeal failed.

Ratio Decidendi: An input used as part of the manufacturing process, or to make the product marketable, is eligible for Modvat credit as being used in or in relation to the manufacture of the final product.

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