Modvat credit on input used to make sulphur dioxide for sugar purification was allowed because the manufacturing nexus was established.

Modvat credit was treated as admissible on sulphur used to manufacture sulphur dioxide where that gas was used in the purification of sugar, because the input was used in relation to the manufacture of the final product. The claimed exemption of sulphur dioxide under Notification No. 40/85-C.E. was not proved by evidence, and the decisive test remained whether the input had the required nexus with production of sugar. On that basis, credit was allowed and the Revenue's challenge failed.

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Issues: Whether Modvat credit was admissible on sulphur used in the manufacture of sulphur dioxide, where sulphur dioxide was used in the purification of sugar and was claimed to be exempt under Notification No. 40/85-C.E. dated 17-3-1985.

Analysis: Sulphur was used to manufacture sulphur dioxide, and sulphur dioxide was in turn used in relation to the manufacture of sugar, the final product. The claimed exemption of sulphur dioxide was not established by evidence. The material test was whether the input was used in relation to the manufacture of the final product, and that requirement was satisfied.

Conclusion: Modvat credit on sulphur was admissible, and the Revenue's appeal failed.

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