Modvat credit on lubricating oil used in brass strip rolling was allowed as an input directly linked to manufacture.

Lubricating oil used continuously in the rolling process for manufacturing brass strips and foils was treated as an input used in relation to manufacture under Rule 57A of the Central Excise Rules, 1944. Applying the Larger Bench principle, the oil was found to have a direct nexus with manufacture because it prevented defects in the brass sheets during production, rather than merely improving machinery performance. On that basis, Modvat credit was held admissible on the lubricating oil, and the appeal was rejected.

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Issues: Whether Modvat credit under Rule 57A of the Central Excise Rules, 1944 was admissible on lubricating oil used during the rolling process in the manufacture of brass strips and foils.

Analysis: Lubricating oil was found to be continuously used in the rolling process and to prevent defects in the brass sheets during manufacture. Applying the Larger Bench principle that the expression "used in relation to manufacture" covers inputs having a significant role in the manufacturing process even if not part of the raw material stream, the oil was treated as an input used in manufacture. The Tribunal also relied on the settled distinction between articles merely improving machinery performance and articles having a direct nexus with manufacture, and held that the lubricating oil fell within the latter category.

Conclusion: Modvat credit on lubricating oil was admissible under Rule 57A of the Central Excise Rules, 1944, and the appeal was rejected.

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