Modvat credit on cleaning and filtration inputs qualifies where the materials are integral to aerated water manufacture.

Modvat credit was treated as admissible on soda ash used to soften water and clean bottles, because bottle washing was regarded as a necessary part of the aerated water manufacturing process and the input was used in relation to manufacture. Modvat credit was also allowed on filter paper used to remove sediments and impurities from sugar syrup before blending, since filtration at that stage was treated as a consumable input integral to production. The note states that materials used in necessary ancillary cleaning and filtration operations can qualify as inputs for Modvat purposes.

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Issues: (i) Whether Modvat credit was admissible on soda ash used in softening water and cleaning bottles in the manufacture of aerated water; (ii) Whether Modvat credit was admissible on filter paper used for filtering sugar syrup used in the manufacture of aerated water.

Issue (i): Whether Modvat credit was admissible on soda ash used in softening water and cleaning bottles in the manufacture of aerated water.

Analysis: Soda ash was used not merely for maintenance or cleaning in isolation, but also for softening water that went into the final product and for washing glass bottles before filling. Cleaning of bottles for aerated water was treated as a necessary part of the manufacturing process, and the input used for that purpose was regarded as being used in or in relation to manufacture.

Conclusion: Modvat credit on soda ash was admissible and the finding was in favour of the assessee.

Issue (ii): Whether Modvat credit was admissible on filter paper used for filtering sugar syrup used in the manufacture of aerated water.

Analysis: The filter paper was used to remove sediments and impurities from sugar syrup before its use in the final product. An item used in such a filtration stage was treated as a consumable input used in relation to manufacture and was not excluded merely because it operated in machinery or in a processing step preceding final blending.

Conclusion: Modvat credit on filter paper was admissible and the finding was in favour of the assessee.

Final Conclusion: The appeal succeeded to the extent of allowing Modvat credit on soda ash and filter paper, while the question relating to glass bottles was not decided on merits in the disposal.

Ratio Decidendi: Materials and consumables used in a necessary and integral step of making the final product marketable, including ancillary cleaning and filtration operations, qualify as inputs used in or in relation to manufacture for Modvat credit.

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