MODVAT credit on inputs for intermediate pipes was allowed where the pipes formed part of capital goods manufacture.

MODVAT credit on steel plates and sheets used to fabricate intermediate steel pipes was admissible because the pipes formed an essential and integral part of turbine-generator equipment, which qualified as capital goods. The absence of duty payment on the intermediate pipes did not, by itself, defeat credit where the inputs were used in the course of manufacture within the factory and the credit scheme under Rules 57A, 57C and 57D(2) applied. The Tribunal upheld the order allowing credit and rejected the Revenue's challenge.

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Issues: Whether MODVAT credit on steel plates and sheets used to fabricate steel pipes, which were in turn used in the manufacture of turbine-generator equipment, was admissible notwithstanding the Revenue's objection that the pipes were not capital goods and that no duty had been paid on the intermediate pipes.

Analysis: The credit claim was examined in the light of the remand direction and the scheme of Rule 57A, Rule 57C and Rule 57D(2) of the Central Excise Rules, 1944. The Tribunal noted that the steel pipes were an essential and integral part of the turbine-generator set and that the set itself fell within the category of capital goods. It further held that the manufacture of pipes from the disputed steel plates and sheets was only an intermediate stage in the process leading to the final capital goods, and that credit could not be denied merely because the intermediate product was not separately subjected to duty. The reliance placed on the Revenue's objection based on exemption and non-payment of duty on the pipes was held not to dislodge the applicability of the credit provisions, particularly where the inputs were used in relation to manufacture within the factory.

Conclusion: MODVAT credit on the steel plates and sheets was admissible, and the Revenue's challenge failed.

Final Conclusion: The impugned order allowing credit was upheld and the Revenue's appeal was rejected.

Ratio Decidendi: Credit on inputs used to manufacture an intermediate product is allowable when that intermediate product is an integral step in the manufacture of dutiable capital goods, and denial cannot rest solely on the fact that the intermediate product itself was not duty paid.

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