Modvat credit on capital goods remained admissible despite captive intermediate products used in making dutiable final goods.

Rule 57R(2) of the Central Excise Rules was applied to protect Modvat credit on capital goods used in manufacturing intermediate products that were captively consumed in making dutiable final products. The presence of intermediate goods did not break the credit chain, and the later inclusion or specification of those intermediates in the credit framework was treated as confirmatory rather than as creating the entitlement for the first time. Modvat credit on the capital goods was therefore admissible and could not be denied where the final product remained dutiable.

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Issues: Whether Modvat Credit on capital goods used in the manufacture of intermediate products captively consumed in the manufacture of dutiable final products could be denied.

Analysis: The governing principle applied was that Rule 57R(2) of the Central Excise Rules protected credit on capital goods even where intermediate products emerged during manufacture, so long as the final product was dutiable. The decision also followed the earlier view that the later inclusion or specification of intermediate products in the relevant credit framework did not mean that credit was unavailable for the period prior to such inclusion, and that the captively consumed intermediate goods did not break the chain of admissible credit.

Conclusion: Modvat Credit was admissible and could not be denied to the assessee.

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