Modvat credit on job-work inputs allowed where intermediate clearances under exemption fed into dutiable manufacture.

Modvat/Cenvat credit on inputs and capital goods used in job-work manufacture could not be denied merely because the intermediate clearances were made without duty under Notification No. 214/86-C.E. where the principal manufacturer used the finished goods in dutiable production. The CESTAT followed the earlier order in the assessee's own case and the Larger Bench view that Rule 57-C of the erstwhile Central Excise Rules, 1944 does not bar credit when inputs are used to make final products cleared without duty for further use in dutiable manufacture. Waste and scrap generated in the manufacture of Bearing Races were treated as excisable, and credit denial on that basis was held unsustainable.

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Issues: Whether Modvat/Cenvat credit on inputs and capital goods could be denied in relation to waste and scrap or by-product generated during manufacture of job-work goods cleared without payment of duty under Notification No. 214/86-C.E., where the principal manufacturer discharged duty on the finished goods.

Analysis: The issue was examined in the light of the earlier order in the assessee's own case and the Larger Bench view that credit is not hit by Rule 57-C of the erstwhile Central Excise Rules, 1944 when inputs are used in the manufacture of final product cleared without duty for further use in the manufacture of dutiable final product. The waste and scrap generated during manufacture of Bearing Races was treated as excisable, and there was no basis to deny credit merely because the job-work clearances were made under Notification No. 214/86-C.E. to the principal manufacturer.

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

Ratio Decidendi: Credit cannot be denied under Rule 57-C merely because inputs are used in job-work manufacture of goods cleared without duty under Notification No. 214/86-C.E., where the resulting goods are ultimately used in dutiable manufacture by the principal manufacturer.

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