Modvat credit for job-work inputs remains admissible when the principal manufacturer clears finished goods on duty payment.

Modvat credit on inputs used in job-work manufacture of goods covered by Notification No. 214/86-CE was available where the principal manufacturer cleared the finished goods on payment of duty. The entitlement turned on whether the final product could be treated as exempted goods; because excise duty was in fact paid at the stage of clearance by the principal manufacturer, the credit chain remained intact and the inputs did not lose credit eligibility. The Tribunal noted that the point had already been settled by prior decisions applying the same principle, and the disallowance of credit was therefore unsustainable.

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Issues: Whether Modvat credit of duty paid on inputs used in job-work manufacture of goods covered by Notification No. 214/86-CE was admissible when the principal manufacturer cleared the finished goods on payment of duty.

Analysis: The entitlement to credit depended on whether the finished goods were to be treated as exempted goods. The goods processed on job-work basis were cleared by the principal manufacturer on payment of duty, and the notification required that the final product be one on which excise duty is leviable. The credit chain therefore extended up to clearance of the finished goods by the principal manufacturer on payment of duty. The issue had already been settled by prior Tribunal decisions following the same legal principle.

Conclusion: Modvat credit was admissible and the disallowance was unsustainable.

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