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Issues: Whether Modvat credit was admissible on H.R. coils in plate form used for manufacturing storage and processing tanks employed in the manufacture of paper, on the footing that such inputs were used in relation to the manufacture and that Rule 57D, as amended, protected credit where inputs went into capital goods used captively.
Analysis: The denial of credit proceeded on the view that the H.R. coils were not directly used in the manufacture of paper and that the tanks made from them were not inputs. The relevant Modvat scheme, however, does not confine inputs to articles having direct use in the final manufacture, but extends to goods used in or in relation to manufacture. The amended Rule 57D, introduced by Notification No. 17/95 (N.T.) dated 18-5-1995, further clarified that credit cannot be denied merely because the inputs are used in the manufacture of capital goods and those capital goods are captively used in the manufacture of final products, even where the capital goods may otherwise be exempt or liable to nil duty. The storage and processing tanks were treated as capital goods for this purpose.
Conclusion: Modvat credit on the H.R. coils was admissible and the denial of credit was unsustainable, in favour of the assessee.
Ratio Decidendi: Credit under the Modvat scheme is available for inputs used in or in relation to manufacture, including inputs used to make captively consumed capital goods, and it cannot be denied merely because the inputs are not directly used in the final product.
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