Broad construction of "in relation to manufacture" supports Modvat credit for grinding wheels used in gear mechanism production.

Grinding wheels used in manufacturing gear mechanisms for gear motors were treated as eligible inputs for Modvat credit under Rule 57A. Applying the Larger Bench construction of the phrase "in relation to manufacture," the text states that the expression extends to goods used in connected manufacturing activities even if they do not enter directly or indirectly into the finished product. It also records that parts of machinery are not covered by the exclusion from the definition of inputs. On that basis, the grinding wheels were not excluded and Modvat credit was admissible to the assessee.

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Issues: Whether grinding wheels used in the manufacture of gear mechanism for gear motors were eligible inputs for Modvat credit under Rule 57A of the Central Excise Rules.

Analysis: The issue was governed by the Larger Bench ruling which construed the expression "in relation to manufacture" broadly. That construction covered goods used in activities connected with manufacture, even if they did not enter directly or indirectly into the finished product. The same ruling also held that parts of machinery do not fall within the excluded category of inputs. On that basis, grinding wheels used in the manufacture of gear mechanism were not hit by the exclusion from the definition of inputs.

Conclusion: The grinding wheels were eligible inputs and Modvat credit was admissible in favour of the assessee.

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