Modvat credit need not match input and final product one-to-one; accumulated credit can offset duty on vehicles.

Modvat credit on duty-paid inputs used in the manufacture of engines could be utilised against duty on motor vehicles cleared from the same factory. The scheme was read as allowing credit for inputs used in or in relation to manufacture, and no rule required one-to-one correlation between a particular input and a specific finished product. The use of the word "intended" supported taking credit on receipt of the input and using accumulated credit later against duty on final products. The article states that departmental guidance also recognised this position, making objections, demands, and penalties unsustainable.

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Issues: Whether credit of duty taken on inputs used in the manufacture of engines could be utilised towards payment of duty on motor vehicles cleared from the same factory, and whether the Modvat scheme required one-to-one correlation between the input on which credit was taken and the final product on which the credit was used.

Analysis: The scheme permitted credit of duty paid on inputs used in or in relation to the manufacture of the final product, and nothing in the rules imposed a restriction that the credit must be confined to a specifically identified finished product. The use of the word "intended" in the governing rule supported the position that credit could be taken on receipt of the input and utilised against duty on final products subsequently cleared. The departmental understanding reflected in the trade guidance also recognised that there was no one-to-one correlation between input and final product, and accumulated credit could be used towards duty on final products.

Conclusion: The credit was validly utilisable for payment of duty on the motor vehicles, and one-to-one correlation was not required. The objection and consequential demands and penalties were unsustainable.

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