Cenvat credit on capital goods used for exempt intermediate goods remains admissible in a dutiable manufacturing chain.

Cenvat credit on capital goods remained admissible where the goods were used exclusively in manufacturing exempt intermediate products for job work, because Rule 6(4) barred credit only when capital goods were used exclusively for exempted goods. The credit could not be denied when the intermediate goods were ultimately used by the principal manufacturer to produce and clear dutiable final products on payment of duty. The CBEC circular and cited precedents supported this view, reflecting the object of Cenvat credit to avoid cascading of duty.

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Issues: Whether Cenvat credit on capital goods used exclusively in the manufacture of exempt intermediate goods for job work was admissible.

Analysis: Rule 3 of the Cenvat Credit Rules, 2001 permitted credit on capital goods received in the factory and used in the manufacture of intermediate products by a job worker, while Rule 6(4) barred credit only where capital goods were used exclusively in the manufacture of exempted goods. The credit could not be denied where the goods produced by the job worker were only intermediate goods and the final dutiable product was manufactured and cleared on payment of duty by the principal manufacturer. The circular issued by the Central Board of Excise and Customs also clarified that credit should not be denied on capital goods used in exempt intermediate goods when such goods were captively used in the manufacture of final dutiable goods. The object of Cenvat credit being to avoid cascading of duty, the cited precedents supported availability of credit in such a manufacturing chain.

Conclusion: Cenvat credit was admissible, and the question was answered in favour of the assessee and against the department.

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