Input tax credit on duty-paid yarn remained admissible despite nil-duty clearance of the intermediate twisted yarn.

Credit on partially oriented yarn supplied directly to a job worker remained admissible where the job worker converted it into twisted yarn and cleared that yarn at nil duty. Because the input was duty-paid and formed part of the manufacture chain leading to dutiable final products, there was no basis to deny credit on a deemed utilisation theory. The fact that the intermediate product was cleared at nil rate did not, by itself, justify reversal of credit on the original input. The assessee was therefore entitled to the credit, and the Revenue's objection failed.

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Issues: Whether credit on Partially Oriented Yarn sent directly to a job worker for conversion into twisted yarn remained admissible when the job worker cleared the twisted yarn at nil rate of duty.

Analysis: The twisted yarn was manufactured from duty-paid POY and was cleared by the job worker at nil rate of duty. In that situation, there was no basis to presume actual utilisation of input credit by the job worker on the POY. Since the input was used in the manufacture chain leading to dutiable final products, denial of credit on the ground of deemed utilisation was not justified.

Conclusion: The credit on POY was admissible to the assessee and the Revenue's objection to the allowance of such credit failed.

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