Commercial parlance test for tools under Modvat credit allowed coated abrasive paper to qualify for input credit.

Duty-paid coated abrasive paper was held eligible for Modvat credit under Rule 57A because it was not established as a tool in commercial parlance and did not fall within the statutory exclusion for tools. Classification under Heading 68, rather than Chapter 82, supported the conclusion, and mere use in the manufacturing process or as part of machinery did not by itself justify denial of credit. The Tribunal therefore treated the Revenue's objection as unsustainable and upheld the grant of Modvat credit.

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Issues: Whether duty-paid coated abrasive paper is eligible for Modvat credit under Rule 57A or falls within the exclusion for tools.

Analysis: The input was classified under Heading 68 and not under Chapter 82, and no evidence showed that coated abrasive paper was known in trade as a tool. The exclusion for tools in Rule 57A had to be understood in commercial parlance, and the material could not be treated as a tool merely because it was used in the manufacturing process. The Tribunal also noted that goods forming part of a machine are not excluded merely on that ground.

Conclusion: The coated abrasive paper was not a tool within the exclusion in Rule 57A and was eligible for Modvat credit.

Final Conclusion: The Revenue's challenge to the grant of Modvat credit failed.

Ratio Decidendi: Where an item is not shown to be commercially understood as a tool and is not covered by the statutory exclusion, it cannot be denied Modvat credit merely because it is used in the manufacturing process or as part of machinery.

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