Modvat credit for paper-machine consumables upheld where items were not expressly excluded as machinery parts.

Modvat credit was held admissible on dandy covers, dryer felt, press felt, industrial cloth and synthetic cloth used on a paper machine because Rule 57A does not exclude every item that functions as a machine part. The Tribunal applied earlier and Larger Bench authority treating felt, wire mesh and similar items used in paper manufacture as inputs rather than excluded machinery parts. As the disputed goods were of the same character, they qualified for credit and the Revenue's objection failed.

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Issues: Whether Modvat credit was admissible on dandy covers, dryer felt, press felt, industrial cloth and synthetic cloth used on a paper machine, when the Revenue treated them as parts of machinery excluded from inputs under Rule 57A.

Analysis: The exclusion under Rule 57A does not extend to every item used as part of machinery. The Tribunal relied on earlier and Larger Bench authority holding that felt, wire mesh and similar machine parts used in paper manufacture are not excluded from the scope of inputs. Since the disputed items were of the same character, they were treated as eligible for credit.

Conclusion: Modvat credit was admissible on the disputed items, and the Revenue's objection failed.

Ratio Decidendi: Items used in manufacture are not denied Modvat credit merely because they function as parts of a machine, unless they fall within the express exclusion in Rule 57A.

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