Cenvat credit on inputs for exempt intermediate products was allowed where they were used to make dutiable final goods.

Cenvat credit on art-paper and gum base paper was held admissible where those inputs were used to make exempt inlay cards and stickers/labels that functioned only as intermediate products in the manufacture of dutiable cassettes. The Tribunal applied the Cenvat scheme, read with the Board's supplementary instructions, and held that credit cannot be denied merely because an intermediate product emerging in the manufacturing chain is exempt, if the inputs are ultimately used in producing the final dutiable goods. On that basis, the inputs were treated as eligible for credit and the Revenue's appeal failed.

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Issues: Whether Cenvat credit on art-paper and gum base paper was admissible when those inputs were used to manufacture exempt inlay cards and stickers/labels, which were intermediate products used in the manufacture of dutiable cassettes.

Analysis: The art-paper and gum base paper were used to make inlay cards and stickers/labels, and those items were only intermediate products meant for use in the manufacture of final cassettes chargeable to duty. The Tribunal distinguished the reliance on Rule 57D(2) of the Central Excise Rules, 1944, but held that the Cenvat scheme, read with the Board's supplementary instructions, did not permit denial of credit merely because an intermediate product emerging during manufacture was exempt, so long as the inputs were used in the manufacture of the final dutiable product. Applying that principle, the inputs were treated as eligible for credit.

Conclusion: Cenvat credit was admissible to the assessee and the Revenue's appeal failed.

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