Capital goods credit on job-work manufacture allowed where goods are not used exclusively for exempted production.

Rule 4(6) of the Cenvat Credit Rules, 2004 was read as denying capital goods credit only where the goods are used exclusively in the manufacture of exempted goods. Notification No. 214/86-C.E. for job work was treated as distinct from a general exemption, because the processed goods were intended for use in the manufacture of dutiable final products. On that basis, capital goods used in job-work manufacture were not barred from credit merely because the intermediate goods were not cleared on payment of duty. The assessee was therefore entitled to capital goods credit and the Revenue's objection failed.

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Issues: Whether capital goods credit under Rule 4(6) of the Cenvat Credit Rules, 2004 is barred when the goods are manufactured on job work basis under Notification No. 214/86-C.E. and not cleared on payment of duty.

Analysis: Rule 4(6) denies credit only where capital goods are used exclusively in the manufacture of exempted goods. The exemption under Notification No. 214/86-C.E. applies to job work where the processed goods are intended for use in the manufacture of dutiable final products, and is distinct from a general exemption on the final product itself. On the facts, the assessee was not manufacturing goods exclusively exempted from duty. The use of the expression "exclusively" in the rule was treated as significant, and credit could not be denied unless the capital goods were not used at all in the manufacture of dutiable goods. The conclusion was supported by the cited precedents.

Conclusion: The assessee was entitled to capital goods credit, and the Revenue's objection under Rule 4(6) failed.

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