Modvat credit for industrial tape used on PU foam sheets upheld as part of the manufacturing process.

Modvat credit was admissible on industrial tape used on PU foam sheets because the tape was treated as an input used in, or in relation to, manufacture under Rule 57A of the Central Excise Rules, 1944. The classification of the sheets under Chapter sub-heading 39.21 was accepted, and Chapter Note 10 of Chapter 39 did not exclude sheets merely because additional material was pasted on them to improve utility or durability. The tape was regarded as part of the manufacturing process and as supporting marketability, so disallowance of credit was unsustainable.

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Issues: Whether Modvat credit was admissible on industrial tape used on PU foam sheets, having regard to whether the tape was used in or in relation to the manufacture of the final product and whether the goods had reached the RG 1 stage before the tape was applied.

Analysis: The disputed product was correctly classifiable under Chapter sub-heading 39.21, and Chapter Note 10 of Chapter 39 did not exclude sheets merely because they were pasted with additional material to improve utility or durability. Under Rule 57A of the Central Excise Rules, 1944, the relevant test was whether the input was used in or in relation to the manufacture of the final product. The industrial tape was found to have been used in the manufacture of the PU foam sheets, and the reasoning accepted that such use supported marketability and formed part of the manufacturing process.

Conclusion: Modvat credit on the industrial tape was admissible, and the disallowance of Rs. 11,376/- was not sustainable.

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