Modvat credit on thinner used in paint dilution is available where statutory rules permit input credit.

Modvat credit was available on thinner used to dilute paint for application in the manufacture of motor vehicle parts, because Rule 57A allows credit for inputs used in or in relation to manufacture where the input and final product are notified and the input is not excluded by the Explanation. The classification of thinner as an input was accepted on the basis of its functional use in the manufacturing process, and the credit could not be narrowed by a Board circular when the statutory rules permitted it. The assessee was therefore entitled to credit on the thinner.

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Issues: Entitlement to Modvat credit on thinner used for dilution of paint in the manufacture of motor vehicle parts.

Analysis: Credit under Rule 57A is available for inputs used in or in relation to manufacture, provided the input and final product are notified and the input is not excluded by the Explanation. Thinner was used to dilute paint so that it could be effectively applied, and the availability of credit could not be curtailed by a Board circular where the rules permitted it. A circular may bind departmental officers, but it cannot restrict the scope of the statutory rules.

Conclusion: The assessee was entitled to Modvat credit on the thinner. The issue is decided in favour of the assessee.

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