Cenvat credit on captive intermediate goods remains admissible when used in manufacturing dutiable final products.

Cenvat credit on inputs used to manufacture intermediate jig wires and jig rods, captively consumed within the factory for producing dutiable final products, cannot be denied merely because the intermediate goods are not cleared on payment of duty. The note explains that where the intermediate products are essential to the manufacture process and remain part of in-factory production of the final dutiable goods, Notification No. 67/95-C.E. does not bar credit on the inputs used in those intermediate goods. The substantive effect is that credit remains admissible when the final output is dutiable and the intermediate goods are used captively in its manufacture.

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Issues: Whether Cenvat credit could be denied on inputs used in the manufacture of jig wires and jig rods which were captively consumed as intermediate products in the manufacture of dutiable final products.

Analysis: The intermediate goods were manufactured within the factory and used in the production process of the final products. Their captively consumed character showed that they were not goods cleared as independent final products, but formed part of the manufacture of the dutiable output. The exemption under Notification No. 67/95-C.E. turned on the status of the goods under Rule 57Q of the Central Excise Rules, 1944, and the goods were treated in the proceedings as intermediate products essential for manufacture. Once the final products were dutiable and the intermediate goods were used within the factory in the manufacture of those products, the credit on inputs used in such intermediate goods could not be denied on the ground that the intermediate goods themselves were cleared without duty.

Conclusion: Cenvat credit was admissible and could not be denied on inputs used in the captively consumed jig wires and jig rods.

Final Conclusion: The common question was answered in favour of the assessee, and the impugned orders were interfered with to grant the substantive relief flowing from that finding.

Ratio Decidendi: Inputs used in intermediate products captively consumed within the factory for manufacture of dutiable final products cannot be denied credit merely because the intermediate products are themselves cleared without duty.

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