Capital goods credit for job worker allowed where processed goods were cleared on duty payment, not as exempted final products.

Capital goods credit was held admissible for a job worker who processed auto components received under Rule 57F(4) and cleared the finished goods on payment of duty under Rule 52A invoices. The denial of Modvat credit on the ground that the goods should have been cleared under Notification No. 214/86-CE failed, because the job worker was not bound to use the notification procedure. Since the final products were actually removed on duty payment, the bar in Rule 57R(1) relating to capital goods used exclusively for exempted final products did not apply. The disallowance of credit was therefore unsustainable.

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Issues: Whether capital goods credit could be denied to a job worker who cleared the processed auto components on payment of duty instead of clearing them without duty under Notification No. 214/86-CE.

Analysis: The job worker had received materials under Rule 57F(4) of the Central Excise Rules, 1944 and, after processing, cleared the auto components on payment of duty under Rule 52A invoices. The denial of credit rested on the view that the goods ought to have been cleared under Notification No. 214/86-CE and, therefore, were exempted final products for the purpose of Rule 57R(1). The Tribunal held that the job worker was not bound to adopt the notification procedure and was at liberty to clear the processed goods on payment of duty. Since the final products were actually cleared on duty payment, Rule 57R(1) did not bar capital goods credit.

Conclusion: Capital goods credit was admissible and the denial of credit was not sustainable.

Final Conclusion: The order disallowing Modvat credit was set aside and the appeal succeeded.

Ratio Decidendi: A job worker who is free to clear processed goods on payment of duty cannot be denied capital goods credit on the footing that the goods ought to have been cleared under an exemption-linked notification, and the bar relating to use exclusively for exempted final products does not apply when duty is actually paid on the final clearance.

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