Modvat credit on intermediate goods in job work cannot be denied when the final product is cleared on duty payment.

Modvat credit on pig iron used to manufacture mould boxes was treated as admissible where those mould boxes were intermediate goods captively consumed in a job-work chain for C.I. castings and the principal manufacturer paid duty on the final product. Rule 57C was read with the job-work scheme so that credit was not broken merely because the intermediate goods themselves were cleared without duty. The duty-paid character of the final product removed the basis for denying credit on the input used for the mould boxes, so the credit denial was unsustainable.

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Issues: Whether modvat credit on pig iron used in the manufacture of mould boxes, which were captively consumed in the manufacture of C.I. castings under job-work arrangements, could be denied by invoking Rule 57C when the principal manufacturer paid duty on the final product.

Analysis: The credit was held admissible because the mould boxes were intermediate goods used in the manufacture of the final product and the principal manufacturer was clearing the final product on payment of duty. The provisions governing job work and denial of credit were read together so that the chain of modvat credit was not broken. On the facts proved, the duty-paid character of the final product of the principal manufacturer removed the basis for denying credit on the input used for the mould boxes.

Conclusion: The denial of modvat credit was unsustainable and the assessee was entitled to the credit.

Ratio Decidendi: Where inputs are used to manufacture goods consumed in a job-work chain and the principal manufacturer pays duty on the final product, modvat credit cannot be denied merely because the intermediate goods are cleared without payment of duty.

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