Cenvat credit on capital goods depends on the final dutiable product, not an exempt intermediate stage.

Cenvat credit on capital goods was considered admissible where the manufacturing chain produced dutiable cotton yarn as the final excisable product. The fact that silver/cotton carded was only an intermediate captive product did not defeat credit eligibility under Rule 57Q, because the relevant test was the excisability of the finished product, not the intermediate stage. Credit could not be denied merely because the intermediate product was exempt or otherwise excluded when it had no independent marketable existence and the final product remained dutiable. The denial of credit was therefore unsustainable.

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Issues: Whether Cenvat credit on capital goods was admissible when the goods manufactured at an intermediate stage were silver/cotton carded used captively in the manufacture of dutiable cotton yarn.

Analysis: The capital goods were used in the manufacturing chain leading to cotton yarn, which was the final excisable product cleared on payment of duty. Silver/cotton carded was only an intermediate product and not the final product for the purpose of Rule 57Q. The relevant test was the excisability of the finished product, not the intermediate stage product. Consistent judicial decisions had held that credit on capital goods cannot be denied merely because the intermediate product is exempt or falls within an exclusion, where the final product is dutiable and does not fall within the exclusion. The cited precedent on sliver/cotton carded supported the view that such intermediate goods have no independent marketable existence and do not defeat eligibility to credit.

Conclusion: Credit on the capital goods was admissible and the denial was unsustainable.

Final Conclusion: The order denying credit was set aside and the appeal succeeded.

Ratio Decidendi: For eligibility of credit on capital goods under Rule 57Q, the character of the final excisable product governs, and credit cannot be denied merely because an intermediate product used captively may itself be exempt or excluded.

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