Inputs used in relation to manufacture: forging test pieces used for in-process testing qualify for Modvat credit.

Forging test pieces received with forgings and used for in-process testing during machining and heat treatment were treated as inputs used in relation to manufacture under Rule 57A. Because they were essential to verifying whether the forgings met specifications at each stage and were used before further manufacture proceeded, the expression was applied in its wide sense to cover goods used in activities connected with manufacture even if they did not form part of the finished product. On that basis, the test pieces were held eligible for Modvat credit and the disallowance was unsustainable.

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Issues: Whether forging test pieces received along with forgings and used for testing during manufacture qualify as inputs used in relation to manufacture for Modvat credit under Rule 57A of the Central Excise Rules.

Analysis: The forging test pieces were received with the forgings and underwent machining and heat treatment alongside them. Their function was to verify whether the forgings met the required specifications at each stage of processing, and only on acceptance of the test results were the components sent for further manufacture. On these facts, the test pieces were not merely parallel items but served an essential role in in-process testing connected with manufacture. The expression used in relation to manufacture was applied in its wide sense, extending to goods used in activities pertaining to the manufacture even if they do not enter the finished product.

Conclusion: The forging test pieces were covered by the expression used in relation to the manufacture and were eligible for Modvat credit. The disallowance was unsustainable.

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