Modvat credit on inputs for captive intermediate explosives remained admissible despite exemption of the intermediate product.

Modvat credit was held admissible on Ammonium Nitrate and Primex used outside the cement factory to manufacture explosives that were then captively consumed at the mines for limestone extraction. The exemption of the intermediate explosives did not by itself defeat input credit, because the inputs retained their eligible character in the production chain and Rule 57D protected credit where an intermediate product emerged and was consumed captively. Rule 57C was not attracted on the facts found. The credit was therefore allowable against duty on the final product, and the denial of credit was unsustainable.

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Issues: Whether Modvat credit was admissible on Ammonium Nitrate and Primex used outside the cement factory for manufacture of explosives consumed captively at the mines for mining limestone, notwithstanding exemption of the intermediate explosives under the relevant notification.

Analysis: The inputs were used in the manufacture of explosives at the mines, and those explosives were consumed at the same site for mining limestone that was later used in cement manufacture. Applying the Supreme Court's ratio that an input need not be brought into the factory of final production for Modvat eligibility, the inputs retained their character as eligible inputs. The exemption of the intermediate explosives did not by itself bar credit on the inputs, because Rule 57D protected credit where intermediate products emerged in the process and the denial under Rule 57C was not available on the facts found. The credit was, therefore, allowable for use against duty on the final product.

Conclusion: Modvat credit on Ammonium Nitrate and Primex was admissible, and the denial of credit was unsustainable.

Final Conclusion: The appeal succeeded and the assessee obtained consequential relief.

Ratio Decidendi: For Modvat purposes, inputs used in the manufacture of an intermediate product outside the factory remain eligible for credit if the intermediate product is captively consumed in the production chain, and exemption of the intermediate product does not by itself defeat credit on the inputs.

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