Modvat credit on lubricating oil and grease used in machinery remains admissible as integral to manufacturing

Modvat credit remains admissible on lubricating oil and grease used to lubricate machinery in manufacture because such inputs are integral to the working of machines and the manufacturing process. The Larger Bench reasoned that friction and heat generated during machine operation make these materials necessary to prevent damage and sustain production. The exclusion under Rule 57B(2) and the amendment introduced by Notification No. 46/96 were considered, but the earlier view favouring admissibility was affirmed, so the Revenue challenge failed.

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Issues: Whether Modvat credit was admissible on lubricating oil and grease used for lubricating machinery in the manufacture of final products despite the exclusion under Rule 57B(2) and the amendment introduced by Notification No. 46/96 dated 1-9-96.

Analysis: The Larger Bench had already held that lubricating oil and grease used for the working of machines and machinery are essential for manufacture and are integrally connected with the manufacturing process. It was further held that the friction and heat generated in machine operation make such inputs necessary to prevent damage and ensure continued production. The amendment and notification relied upon by the Revenue were considered and the earlier view in favour of admissibility was affirmed.

Conclusion: Modvat credit on lubricating oil and grease used for lubricating machinery is admissible, and the Revenue challenge fails.

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