Modvat credit for button cells in calculators upheld on a broad "in relation to manufacture" test

Button cells used in electronic calculators were treated as eligible Modvat inputs because they were necessary for the calculator's operational use and not merely accessories. The reasoning applied a broad reading of "in or in relation to manufacture", focusing on whether the item was required for the gadget's functional operation, supplied with the product at the factory gate, and reflected in the value of the final product. On that approach, commercial supply with the finished product did not disqualify the item from input treatment, and credit was admissible.

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Issues: Whether button cells used in electronic calculators were eligible inputs for Modvat credit under Rule 57A of the Central Excise Rules, 1944.

Analysis: Button cells were treated as essential to the operational use of the calculator and not as a mere accessory. The governing test was whether the item was required for the operational need of the gadget, supplied with it at the factory gate, and whether its value formed part of the value of the final product. The reasoning adopted the wide scope of the expression "in or in relation to the manufacture" and the principle that an accessory is not, by itself, a disqualification if it is commercially supplied with the final product and contributes to making it marketable.

Conclusion: Button cells qualified as inputs for Modvat purposes and credit was admissible; the assessee succeeded on this issue.

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