Modvat credit on job-work clearances was upheld where goods were later dutiably cleared by the principal manufacturer.

Modvat credit on craft paper used in manufacture of goods cleared on job-work basis was not barred under Rule 57C where the finished goods were sent to the principal manufacturer under Notification No. 214/86-CE and were not finally exempt or cleared at nil duty. The Tribunal applied earlier decisions to treat such job-work clearances as distinct from clearances under full exemption, so the credit could not be denied merely because duty was not paid at the intermediate stage. The revenue's challenge on merits therefore failed.

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Issues: Whether credit under Rule 57C was inadmissible on craft paper used in the manufacture of goods cleared on job-work basis without payment of duty under Notification No. 214/86-CE, and whether the revenue's appeal could succeed on that basis.

Analysis: The respondents manufactured paper insulated copper/aluminium strips and used craft paper on which Modvat credit had been taken. The finished goods were cleared to the principal manufacturer under the job-work arrangement contemplated by Notification No. 214/86-CE, and the goods were not finally exempt but were thereafter cleared from the principal manufacturer's premises on payment of duty. On the reasoning of the earlier decisions relied upon, such clearances on job work basis do not amount to clearance of finished goods under full exemption or at nil rate of duty for the purpose of denying credit.

Conclusion: Credit was not to be denied under Rule 57C, and the revenue's challenge on merits failed.

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