Modvat credit on inputs used for intermediate moulds in steel casting manufacture was found admissible.

Modvat credit was admissible on CO2 gas used to manufacture sand moulds that served as an intermediate stage in making steel castings. Applying Rule 57A of the Central Excise Rules, 1944, the relevant test was whether the goods were used in or in relation to manufacture of the final product. Because the sand moulds were used only as a non-marketable, non-excisable intermediate product in the production process, the use of CO2 gas was sufficiently connected with the manufacture of steel castings. The denial of credit was therefore unsustainable, and consequential relief followed in accordance with law.

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Issues: Whether Modvat credit was admissible on CO2 gas used in the manufacture of sand moulds employed in the manufacture of steel castings.

Analysis: The applicable test under Rule 57A of the Central Excise Rules, 1944 was whether the goods on which credit was claimed were used in or in relation to the manufacture of the final product. The sand moulds were used as an intermediate stage in the manufacture of steel castings, and the Tribunal had already held that such sand moulds had no marketability and were not excisable goods. CO2 gas was used in making those sand moulds, and therefore its use was sufficiently connected with the manufacture of steel castings.

Conclusion: Modvat credit on CO2 gas was admissible and the issue was decided in favour of the assessee.

Final Conclusion: The denial of Modvat credit was unsustainable and the assessee became entitled to consequential relief in accordance with law.

Ratio Decidendi: Goods used in the preparation of an intermediate product employed in the manufacture of the final excisable product are eligible inputs for Modvat credit when they are used in or in relation to manufacture.

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