Cenvat credit for exempt intermediate goods remains available when the final product is dutiable under the same production stream.

Cenvat credit on input services used to manufacture rectified spirit or absolute alcohol is admissible where that intermediate product is further used in the manufacture of denatured spirit cleared on payment of duty. The settled principle applied is that credit is not denied merely because an intermediate product is exempt or non-dutiable, so long as the final product emerging from the same production stream is dutiable. The analysis reflects the anti-cascading object of Cenvat credit and the distinction between exempt intermediate goods and exempt final goods, with credit therefore available to the manufacturer.

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Issues: Whether Cenvat credit on input services used in the manufacture of rectified spirit or absolute alcohol, an intermediate or exempt product, is admissible when that product is further used in the manufacture of denatured spirit cleared on payment of duty.

Analysis: The dispute turned on whether the intermediate product, though not dutiable in itself, could be treated as a bar to credit when the same production stream culminated in a final product on which duty was paid. The Tribunal noted that the issue stood covered by the settled principle that credit is not denied merely because an intermediate product emerges without duty, so long as the final product is dutiable. Reliance was placed on the objective of Cenvat credit to avoid cascading of duty and on the distinction between exempt intermediate goods and exempt final goods.

Conclusion: The respondent was entitled to Cenvat credit on the input services used in the manufacture of rectified spirit or absolute alcohol, as the goods were further used in the manufacture of denatured spirit cleared on payment of duty.

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