Modvat credit for coated abrasive paper upheld as an eligible input used in plywood manufacture.

Coated abrasive paper was treated as an input used in relation to the manufacture of marketable plywood because polished plywood would not come into existence without it. It was not regarded as a tool, since it merely smoothened or polished the plywood and did not shape it, and it was not known in the market as a tool. Following the prior Division Bench view, the article concluded that coated abrasive paper qualified for Modvat credit under Rule 57A and was not excluded from the scope of eligible inputs.

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Issues: Whether coated abrasive paper or emeri paper was entitled to Modvat credit under Rule 57A of the Central Excise Rules, 1944, and whether it was excluded as a tool or as a material not used in relation to manufacture.

Analysis: Coated abrasive paper was held not to be a tool, as it merely smoothened or polished the plywood and did not shape it, nor was it known in the market as a tool. It was also held to be used in relation to the manufacture of marketable plywood, since polished plywood would not come into existence without its use. The prior Division Bench view on the same question was followed.

Conclusion: The coated abrasive paper was eligible for Modvat credit and was not excluded from the scope of input under Rule 57A. The Revenue's challenge failed.

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