Modvat credit and inter-factory transfer under Notification No. 217/86 cannot be denied merely because intermediate goods move for further manufacture.

Rule 57L was discussed in the context of Modvat-style money credit for ethyl alcohol used to manufacture acetic acid, where part of the intermediate product was moved to another factory of the same manufacturer under Notification No. 217/86 for further manufacture. The text explains that Rule 57L bars credit where final products are fully exempt or chargeable to nil duty, but Notification No. 217/86 is intended to permit inter-factory movement of inputs within the same manufacturer's chain of production. Because the money credit scheme and Modvat scheme serve similar anti-cascading objectives, credit could not be denied merely due to such transfer, and the denial under Rule 57L was unsustainable.

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Issues: Whether Modvat-style money credit could be denied under Rule 57L where ethyl alcohol was used to manufacture acetic acid, part of which was removed without payment of duty under Notification No. 217/86 to another factory of the same manufacturer for further manufacture.

Analysis: Rule 57L bars credit where final products are fully exempt or chargeable to nil duty, but Notification No. 217/86 was designed to facilitate movement of inputs between factories of the same manufacturer under Chapter X procedure. The reasoning in the earlier decision on similar exemption and captive consumption principles was not confined to Modvat credit alone. The money credit scheme and the Modvat scheme served broadly similar purposes, and denying credit in such a case would defeat the object of the notification and reintroduce the cascading burden that the scheme sought to avoid.

Conclusion: Credit could not be denied merely because the intermediate acetic acid was moved to another factory under Notification No. 217/86. The denial under Rule 57L was unsustainable and the assessee succeeded.

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