Modvat credit for lubricating oil depends on an integral nexus with manufacture, even if it is not a raw material.

Lubricating oil and hydraulic oil used in the manufacturing process were treated as inputs for Modvat credit under Rule 57A where their use had an integral and necessary nexus with manufacture. The governing test was whether the material was used in or in relation to manufacture, even if it did not enter the main stream of production as a raw material. Lubricating oil used to keep machinery operational during manufacture satisfied that test, and credit was held admissible. The disallowance was set aside and the appeal was allowed.

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Issues: Whether lubricating oil and hydraulic oil used in the manufacturing process qualified as inputs for Modvat credit under Rule 57A of the Central Excise Rules, 1944.

Analysis: The governing test is whether the material is used in or in relation to the manufacture of the final product. A goods need not enter the main stream of production or act as a raw material if its use is integrally connected with manufacture and without it the final product would not come into existence in a commercially expedient manner. Lubricating oil used for keeping the machines operational during manufacture satisfied this test on the reasoning already adopted in earlier Tribunal decisions.

Conclusion: The lubricating oil was held to be an input used in relation to manufacture and Modvat credit was admissible. The disallowance was set aside and the appeal was allowed.

Ratio Decidendi: For Rule 57A, an item qualifies as an input if it has an integral and necessary nexus with manufacture, even though it is not directly consumed in the main stream of production as raw material.

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