Modvat credit requires use in manufacture; evaporated input lost in storage before production did not qualify.

Modvat credit was available only where the input was used in, or in relation to, manufacture of the final product; mere receipt under duty-paying documents was insufficient. Here, the input was a volatile substance that evaporated during storage before any use in manufacture, and there was no finding that it had entered the production process. Rule 57D did not apply because the loss occurred in storage, not as waste or by-product arising in manufacture. The claim to Modvat credit was therefore not admissible and was rejected.

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Issues: Whether Modvat credit was admissible on inputs that had been received under duty-paying documents but had evaporated or suffered shortage during storage without being used in or in relation to the manufacture of the final product.

Analysis: The entitlement to Modvat credit depends on the declared input being used in or in relation to the manufacture of the final product. On the facts, the input was a volatile substance and the loss occurred because of evaporation during storage. There was no finding that the input had been used in manufacture, and Rule 57D was inapplicable because there was no question of input going into waste or by-product arising in the manufacturing process.

Conclusion: Modvat credit was not admissible on the evaporated input, and the claim was rejected.

Ratio Decidendi: Modvat credit is available only when the input is used in or in relation to the manufacture of the final product; mere receipt of duty-paid input is insufficient where the input is lost in storage before such use.

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