MODVAT credit on job-work inputs remains admissible when final dutiable products are cleared on payment of excise duty.

MODVAT credit was treated as admissible on inputs used in job-work goods where the finished products ultimately formed part of dutiable final products cleared on payment of excise duty by the principal manufacturer. The Tribunal's reasoning was that the credit chain was not broken merely because the appellant undertook job work and the semi-finished goods were cleared under Notification No. 214/86. On that basis, denial of credit and the associated penalty were found unsustainable.

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Issues: Whether MODVAT credit was admissible on inputs used in goods manufactured on job-work basis and cleared under Notification No. 214/86.

Analysis: The entitlement to credit turned on whether the benefit could extend to inputs used in job-work goods when the finished products were ultimately cleared on payment of duty by the principal manufacturer. The Tribunal followed its earlier view that, where the final products are excisable and duty is paid at the end of the chain, the credit chain is not broken merely because the appellant undertakes job work and clears semifinished goods under Notification No. 214/86.

Conclusion: MODVAT credit was admissible and the denial of credit and penalty were not sustainable.

Ratio Decidendi: Where job-work goods ultimately form part of dutiable final products cleared on payment of excise duty, MODVAT credit on eligible inputs cannot be denied merely because the intermediate clearance is made under Notification No. 214/86.

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