Modvat credit for welding electrodes used in plant fabrication was admissible where the plant supported final product manufacture.

Modvat credit on welding electrodes used to fabricate a recausticising plant within the factory was admissible under Rule 57D(2) read with Rule 57A. The inputs were used in making plant that was itself employed in manufacturing the final products, so credit could not be denied merely because the electrodes were not used directly in the finished goods. A narrow construction that excluded such inputs would make Rule 57D(2) ineffective. The rule treats inputs used in the manufacture of capital goods or intermediate goods on the same footing where those goods are further used in producing the final product, and the Revenue's challenge failed.

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Issues: Whether Modvat credit on welding electrodes used for fabrication of recausticising plant inside the factory was admissible under Rule 57D(2) and Rule 57A.

Analysis: The inputs were not disputed to have been used in fabrication of the recausticising plant, which in turn was used within the factory for manufacturing the final products. A restrictive reading that denied credit merely because the inputs were not used directly in the final product would render Rule 57D(2) redundant. The rule treats inputs used in the manufacture of capital goods, or intermediate goods, on the same footing for the purpose of Modvat credit when such goods are further used in the manufacture of the final product.

Conclusion: Modvat credit on the welding electrodes was admissible, and the Revenue's challenge failed.

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