Modvat credit on job-worked components upheld despite SSI exemption objections and returned finished machines.

Modvat credit on duty-paid capital goods and components sent to job workers under Rule 57S was held not to be deniable merely because the job workers returned completed machines. The Tribunal applied its earlier view that processing through job workers remained within the benefit of Notification No. 214/86-CE, so the routing of components did not defeat the assessee's credit entitlement. The objection that the components' value was not includible for SSI exemption computation, or that there was undervaluation, did not override the settled eligibility for credit. The denial of modvat credit was therefore not justified.

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Issues: Whether modvat credit on capital goods/components sent to job workers under Rule 57S of the erstwhile Central Excise Rules, 1944 could be denied on the ground that the job workers returned completed machines and the value of the components was not includible for SSI exemption purposes.

Analysis: The appellant had supplied duty paid components to job workers for processing and re-working, and the goods were returned after such work. The Tribunal followed its earlier view that job workers were eligible for the benefit of Notification No. 214/86-CE. In that legal setting, the routing of components through job workers did not justify denial of modvat credit to the appellant. The objection based on alleged undervaluation and SSI exemption computation did not displace the settled position on eligibility for credit.

Conclusion: The denial of modvat credit was not justified and the issue was decided in favour of the assessee.

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