Modvat credit on transformer oil was admissible where the oil was essential to complete manufacture and was filled before clearance.

Modvat credit was held admissible on transformer oil used in manufacturing transformers because the oil was filled into the transformers before clearance, formed part of the final product's value, and was necessary for the transformer to function. The Board's circular under Rule 57A treated the oil as eligible input since manufacture was not complete until the oil was filled. The earlier Tribunal decision cited by the Revenue was found inapplicable on the facts, and denial of credit was unsustainable.

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Issues: Whether Modvat credit was admissible on transformer oil used in the manufacture of transformers.

Analysis: The transformer oil was filled into the transformers before clearance from the factory and its value was included in the value of the final product. The Board's circular clarified that Modvat credit under Rule 57A was admissible on transformer oil because a transformer cannot function without such oil and its manufacture is not complete until the oil is filled. The earlier Tribunal decision relied upon by the Revenue was held to be inapplicable on the facts.

Conclusion: Modvat credit on transformer oil was admissible and the denial of credit was unsustainable.

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