Modvat credit eligibility for input used in yarn manufacture remained intact despite later specification of the intermediate product.

Modvat credit on Viscose Staple Fibre used to manufacture Viscose Blended Cotton Yarn could not be denied for the period before 21-10-1994 merely because carded/combed cotton was not then specified as a final product. The settled position applied was that the intermediate product was not excisable for the relevant purpose, while the input used in producing the specified final product remained eligible for credit. The later specification of the intermediate product did not affect entitlement for the material period, so denial of credit was unsustainable and the credit was admissible.

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Issues: Whether Modvat credit on Viscose Staple Fibre used in the manufacture of Viscose Blended Cotton Yarn could be denied for the period prior to 21-10-1994 on the ground that the intermediate product, carded/combed cotton, was not then specified as a final product for the purpose of input duty credit.

Analysis: The dispute turned on whether the non-specification of carded/combed cotton prior to 21-10-1994 disentitled credit on the input used in the manufacture of the final product. The governing position, as already settled in earlier decisions, was that the intermediate product was not excisable for the relevant purpose and that the input used in the manufacture of the specified final product remained eligible for Modvat credit. The later specification of the intermediate product did not alter the entitlement for the material period.

Conclusion: The denial of Modvat credit was unsustainable and the credit on Viscose Staple Fibre was admissible for the relevant period.

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